You can, but you may not
December 17, 2020
By Martha Sullivan, CPA, CVA/ABV, CM&AA, CEPA
Partner, Succession Planning Practice Leader
Martha leads HK’s succession and exit planning services division and is a regular contributor to Wisconsin’s InBusiness digital magazine.
Just the other day, I was reminiscing about my fifth grade math teacher, Mr. Mercer. He was a wonderful teacher, firm with us precocious tweeners, yet with a great, sly sense of humor. One of his favorite comebacks to “Mr. Mercer, can I go to the restroom?” was “You can, but you may not.” Cue the eyeroll and groan as the student watched the clock for the remainder of class. It was simultaneously a grammar lesson, a lesson on needs, wants, and abilities, and a lesson about planning, patience and, depending on the day, endurance to bridge that uncomfortable gap in time.
What strikes me about that memory today is how well “you can, but you may not” applies to many companies these days as well as business owners. We can do many things, yet we make decisions each day that result in a “may not,” creating a whole set of different gaps in our results versus our potential.
Now your mind may be going down the path of the treachery of 2020 where life has been filled with “can, but may not” moments. Let’s challenge ourselves to forget about the pandemic for a while. Let’s think broader terms. What is it you need, want, and are capable of? What is your goal? How does that relate to the best in class? To your potential wealth and success of your company? These are the measures of your “can.”
What about the “may” though? To determine that, you look to where you stand today. The difference is the gap you need to bridge and cross. There are three key gap metrics I believe business leaders should routinely keep track of in their business. These gaps are your ultimate measure of the impact of “can, but may not.” They are the:
- Wealth gap = The additional wealth you need to accumulate to meet your wealth goal;
- Profit gap = The profit you’re sacrificing by not operating at a best-in-class level; and
- Value gap = The business value you’re sacrificing by not operating at a best-in-class level.
Wealth gap: Think about your nest egg. What do you have tucked away in it? What should you have tucked away in it? What could you if you put your mind to it? What do you want? What do you need? Every one of us is likely to be able to toss out a number of what we want. It’s a far rarer bird that’s on top of what you need — that is, what is your average monthly spend and what do you spend money on? What portion of the money goes toward needs vs. fun wants?
This is one of the best examples of “you can, but you may not” in my humble opinion. Regardless of scale, the decisions I make today impact the size of my wealth gap. For example, if I take that job for “X” vs. “Y,” or buy this shiny new thing that caught my eye rather than make do without it because I know I don’t really need it, or swing into Starbucks regularly when I can get coffee for free at work, I’m impacting my long-term financial health.
Profit gap: Think about the player in your industry who you admire the most. They are the top of the heap and who everyone would consider to be the best in class. What if you could achieve the same level of bottom-line profitability on a percentage basis as they do? What could you do with all that extra flow?
For example, let’s say the best-in-class player has earnings before interest, taxes, depreciation, and amortization (EBITDA) of 15% of revenue. On the other hand, you have a normalized EBITDA percentage of revenue of 8%. If you had $5 million in revenue, what could you do with that extra $350,000 ([15% – 8%] x $5 million) that’s sitting in your profit gap? I imagine you’d come up with a few ideas!