Traditionally, Parkinson’s Law expresses the human tendency to fill a given time allotment to complete a given job. It argues that if less time were given, the same job would be completed in that shorter time frame, and conversely, if more time were given, the job would take longer to do.
In the context of finances, a similar phenomenon is observed: expenses expand as income increases. When more money comes in, if we don’t deliberately change our behavioral tendencies, we see more money going out. We justify more expenses only because we know that the bank account will still be positive. Okay, and maybe “there was this thing we’ve really wanted for while, and it would be so good for us”. Largely, this is just how we are wired. But we can short circuit this tendency. Rise above it. It will take deliberate effort, though.
If we accept and follow the default tendency and pattern of Parkinson’s Law without conscious thought, we become a hamster running in the wheel of slim margins, even with revenue spikes. You may say “That’s okay, I’m still in the black, and by the way I got this really cool thing that is so good for us.” I get it, I hear you. But what about things like the overhead door breaking, your laptop crashing or replacing tires on the company vehicle, not to mention the annual insurance premium? “Oh, what a feeling…” (We call these True Expenses).
In order to get out of that wheel and be in control of where we go we must break Parkinson’s Law. We need to operate outside of default tendencies. It’ll take some work, a little bit of discipline, and most importantly, a plan (by “plan” I mean budget. Sshhh. More on this later). 😉 Thankfully, there are software tools that help out a ton with this!
Sticking to The Plan, defying Parkinson’s Law, springboards you out of any pseudo paycheck-to-paycheck cycle so that you can do what you’ve always wanted to do: reach your goals, take time off work, or do some investing, inside or outside your company! You will also be able handle an emergency when it inevitably occurs (and not even feel it). Repeat over time, create this behavior, and you’ll see significant and tangible gains in your bottom line, and your bank account. “Oh, what a feeling!”
What could your business do when you take control of surpluses, especially larger windfalls when the revenue spikes? Contact me if you would like to collaborate on your plan.