Image credit: The 621st Contingency Response Wing

Are You Flying Blind with Your Small Business?

Yes, the above is a picture of a cockpit in a plane.

Are you about to fly? If so, bookmark this page and return after you’ve safely landed.

On land now? No more flying? OK, read on.

Would you be willing to be a passenger in this plane if you knew that the pilots understand only some of the dials? What if the pilots told you that they only look at some of the dials, but ignores the ones they don’t remember what they do?

(Rest easy. This would never happen in real life.)

Interpreting plane dials and taking action

Dials show what is happening inside and outside of the plane, and how it’s performing.

A safe flight takes:

  1. Good dials.
  2. Somebody that understands what the dials report.
  3. Somebody that can take action based on what is happening.

Plane dials provide information about speed, altitude, pressure, and things of that nature.

In business, the dials transmit information in a very specific language we know as accounting.

Before you roll your eyes, here’s another example closer to earth.

Reading the business scoreboard

All sports have a language. Football has touchdowns, tight ends, fumbles, and blitzes. Basketball has dunks, dribbles, rebounds, and layups. Want to try cricket? It has a wicket keeper, leg break, crease, and stumps. If you don’t understand the language, you cannot play or keep score.

You can’t become an expert in any of these activities if you can’t speak the language. If you can’t read the language, you can’t read the scoreboard.

“If you can’t read the scoreboard, you don’t know the score. If you don’t know the score, you can’t tell the winners from the losers,” said Warren Buffet.

Being able to read the scoreboard is the only way to be able to drive the strategy and the results.

The impact of measurement on outcomes

Here’s an important distinction: numbers are the outcome. If you don’t like the outcome, you must change the activities. Accountants specialize in converting activities into numbers. You MUST learn how to convert numbers into new activities that will get you the results that you are after. (Or hire someone who can do that.) Kind of a reverse engineering thing.

Become a measuring freak. If I meet somebody who doesn’t want to measure, I know somebody that doesn’t want to be held accountable. If it can be changed, it can be measured. What you choose to measure is what your management must focus on. Measure those activities that produce the results.

To be clear, accounting is not the key to business success. The key to business success rests in management’s ability to make ongoing adjustments based on the results from previous activities. Accounting is just an activity recording method.

In a pirate’s map, there is no point in digging anywhere. Dig only where the X is!

What to do next

Your homework — if you choose to accept it — is to get your CPA, accountant, or bookkeeper to provide accurate:

  • Balance sheets: Snapshot of assets, liabilities, and ownership equity.
  • Profit and loss statements: Also referred to as income statement. These show the amount of money flowing in and out of the business.
  • Cash flow statements: Captures current state of cash in your business.

Think of these as the cockpit of your small business. Together, they’ll give you the status of your business and how it’s faring. You can’t say what’s working and what’s not if you don’t have a scoreboard to report progress.

A growing business:

  1. Reviews reports consistently. (Balance sheets, P&L statement, and cash flow statement.)
  2. Has someone that can understand what these reports say.
  3. Ensures someone takes action based on the report analyses.

What are you going to do now? Start learning the dials or find someone who can?

Image credit: The 621st Contingency Response Wing

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