Talking Magic Numbers for Your Shop with Tim Coleman

In the ever-evolving landscape of the secondary wood manufacturing industry, small to medium-sized businesses constantly grapple with the challenges of growth and scalability. Tim Coleman, a seasoned entrepreneur with over three decades of experience, sheds light on these challenges, the virtues of maintaining a business at an optimal size, and the importance of strategic financial management. His insights, shared in a conversation with Matt Wainer on the second episode of the Pro Cabinet Maker podcast, offer valuable lessons for businesses striving for sustainable growth.

 

Understanding Your Business Size and Leadership Limits

Coleman emphasizes the importance of recognizing leadership limitations as a key factor in determining a business’s ideal size. Drawing on wisdom from Peter Drucker, he points out that a manager typically can’t effectively manage more than six direct reports. This principle guides small business owners who grapple with the challenges of expansion and personnel management in finding their “sweet spot” for the size of their operations. Coleman’s experience suggests that a small team, well-managed, can be the formula for success, where every role from designer to installer plays a crucial part in maintaining efficiency and control. He illustrates this point with his own experience, noting that a business generating $400,000 in annual revenue can be as, if not more, profitable than one earning significantly more, due to the controlled costs and focused management.

 

The Journey Through Growth

Coleman’s own business trajectory offers a candid look into the challenges of scaling. At its peak, his company reached $3.5 million in revenue, a figure that, while impressive, brought its own set of challenges. “We were too big to be small and too small to be big,” he recalls, highlighting a common predicament for growing businesses. This “uncomfortable place” of being caught between the operational demands of a large business and the agility of a small one is a cautionary tale for those seeking to expand without a clear strategy.

Drawing on his experiences, Coleman advises against hurried growth, suggesting a more measured approach to expansion. He likens this process to navigating through a “black hole,” emphasizing the importance of planning and saving before making significant leaps in size. This strategy, he argues, can prevent the loss of control that often accompanies rapid expansion, ensuring that business owners remain in the driver’s seat of their organization, instead of being driven by it.

 

Strategic Financial Management: Budgeting and Forecasting

The distinction between budgeting and forecasting is highlighted as a fundamental aspect of financial management. Coleman describes the budget as a plan for expenses, while forecasting aims to predict revenue. Coleman encourages building business forecasts as a way to set goals and create concrete plans to achieve those goals. A key to forecasting realistically, Coleman explains, is charting your finances so that you can make comparisons annually and to a rolling average over time. This dual approach allows businesses to pursue their financial goals, anticipate seasonal fluctuations, and prepare for future demands. Coleman suggests that your financial tracking should be a living document. Engaging in regular review and adjustment of these financial tools ensures they remain relevant and reflective of the business’s current situation.

Even if you don’t consider yourself to be particularly good at or comfortable with crunching financial information, Coleman encourages business owners to start in small increments, collecting your financial reports every month and tracking important figures like revenue and expenses in easily accessible spreadsheets. Owners need to schedule and make specific time commitments much like they make commitments to manufacturing and installation schedules to ensure that they are spending the necessary time on their financial goals and expenses, serving as a blueprint for small business owners to maintain control over their operations and make informed decisions.

Coleman’s experience underscores the importance of proactive business management. Rather than being reactive to circumstances, such as customer inquiries or market pressures, strategic decision-making based on thorough analysis and planning allows business owners to steer their operations toward sustainable growth and stability. This proactive stance is essential for maintaining control over the direction and health of the business.

If you enjoyed this article and want to know more, visit the CMA’s website to listen to the PRO Cabinet Maker podcast here.

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