What is Parkinson’s Law and how does it affect your business?

Parkinson’s Law states that “work expands to fill the time available for its completion”.

Deadlines can cause procrastination or even prompt people to fill that time with trivial matters. So if you have 2 hours to complete a task and put in the effort, you’ll complete the project within that time frame so long as you reframe from stopping and starting. The more time you have available to complete something, the greater the potential that you would fill that time and focus on multiple things that don’t fully support the task’s completion. This leads to potentially completing work out of scope and disrupting other tasks.

Procrastination is another key player in Parkinson’s Law. Knowing that we have a set amount of time to do something often inspires us to leave work to the last minute, and our delays in getting started can mean the time allotted for that task expands. Yet ultimately, it can lead to less time and more effort. Where we’d like to be sitting is more time and less effort needed.

So why does this happen? Some speculate that looming deadlines are motivating so that fast-approaching end dates give people a nudge to buckle down and focus.

For example, you and your team have two weeks to complete a research project, more than enough time. But because you know you have that time at your disposal, the project grows more and more complex, and some tasks get put off or pushed back due to procrastination, lack of clarity and communication in priorities and focus. Now that project really could have been a simple and quick undertaking, it is actually now something that requires full two weeks to complete, and there’s a sense of urgency and crunch as you rush to complete the project in that shorter amount of time. That’s Parkinson’s Law in action.

Clearly outlining your vision and goals, clarifying roles and responsibilities and setting timelines are strategies to overcome Parkinson’s Law. You can start early with projects by planning, and be clear with your communication where you can set expectations about how you and your team would approach and conquer work and projects that are prone to scope creep and procrastination

Parkinson’s Law in cashflow management

The concept also applies to other areas including cashflow management.

It’s important to recognise you (or your team) are likely to spend any cash that’s available.

As your business grows, and your cash accumulates, somehow, you will find new ways to spend that money. Of course, many of those new expenses are legitimate running costs of your growing business. However, upon closer examination, you will discover that much of the new spending is on non-core activities. Perhaps you decide to re-brand, even though there is no good reason to (other than the fact that you’ve got bored with the ‘look’ of your stationary). Perhaps you start getting a few more Uber Blacks, when before you were happy with the Uber X.

It’s easy to fall into this trap and fail to prioritise stockpiling cash for when it’s needed. One of the main problems is most small business owners have their money coming in and out of the same bank account.

This is like constraining your time available to complete a task or storing all your food on one plate. The one account mistake is a recipe for consistent and never-ending cash flow issues.

If this is how you’re currently running your business, you’ll never build it into something profitable. It is impossible to keep track and every windfall will be very quickly spent.

The fact is, if you pull some cash out (profit) and lock it away the moment it comes in, you will work out how to run your business on what’s left. You just will. (You probably started with nothing, and you managed to work it out). Surpluses tend to make us less creative and resourceful – so it’s best to squirrel some cash away right now, and get back to working out how to manage what’s left.

Handling your business finances this way not only keeps you from overspending but also makes sure you always have enough money for both expected and unexpected expenses — all while still having extra cash to make a positive impact in the world.

If you are not constraining yourself by allocating money to the important areas of saving, donating and yes, paying yourself, you will end up spending all your revenue. This may help grow your business faster, but you are not protecting your business, and you risk ending up in a place where you’re constantly chasing your tail, or worse.

As your accountants, helping you look ahead with confidence is core to our purpose!

Setting targets and monitoring your actual cashflow against your forecast will also enable you to predict large cash outflows and respond to changes in your business.

Cashflow management is a part of our Virtual CFO service that can help you identify and fix the underlying causes of poor cashflow in addition to preparing a Cashflow Forecast for your business. With specialised skills and extensive experience, our KMT advisers will work with you to set goals for improvement and implement strategies to maximise your business cashflow.

Contact us today to learn how to improve your cashflow management!

This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek professional advice from a qualified accountant or financial adviser at KMT Partners.