How to get the information you need to manage your business
Your numbers are trying to tell you something. Are you listening?
In my experience, most business owners aren’t. At least, they aren’t listening hard enough. Let me explain.
Every piece of information you need to make decisions regarding your business can be found in your numbers. Want to know where to spend your marketing dollars? Your numbers can tell you. Thinking about streamlining and dropping some products or segments? Listen to your numbers to discover which ones to let go.
But here’s the problem. You’re not going to get that information from your year-end financial statements. And unfortunately, the creation of those statements is about all the accounting the average business owner does.
In this article, I’m going to discuss the accounting method most business owners use and why it’s almost entirely useless for decision-making purposes.
Then I’ll tell you about another way of looking at your numbers that will—100 per cent guaranteed—make you a more effective manager and substantially improve your business.
Peering through a keyhole
Ever tried to see what’s going on in a room through an old-fashioned keyhole?
With a limited view, you might get the general idea—who’s in the room, what the person is doing. But there’s plenty outside your field of vision that, if seen, would give you more insight into why that person is behaving that way.
Your year-end financial statements work in the same way. They provide a general overview of what’s happened in your business but can’t tell you why. Yet for most business owners, they are the source of the only numbers used to make business decisions.
What is the purpose of accounting?
In short, the purpose of accounting is to provide relevant information to decision makers, both internal (management) and external (bankers).
For most small and medium-size businesses, the focus of accounting is simply the preparation of year-end financial statements for tax purposes and, possibly, for outside parties.
When you receive your year-end statements from your accountant, you are simply receiving a record of how your business did last year and how much tax you owe.
How do these statements help your business?
In a nutshell, they don’t. There are two reasons for this…..stay tuned for my next post to find out more…