And I’ve suddenly noticed a common trait in small businesses – they just love to overcomplicate their finances! Usually without having any of the basics in place first.
I’ve seen so many small companies trying to run grandiose divisional / departmental / product profitability reporting, when they haven’t even got basic profit and loss or cashflow reports for their business as a whole. And they’re running around worrying about details that don’t matter, without a clear picture of how the business is performing. The really important information just gets lost in all the detail and the noise.
I always think of the deckchairs being arranged on the deck of the Titanic when I see this. It describes it perfectly as we often find a significant and urgent issue in the profitability or a hole in the cashflow that no-one could see.
It’s not unusual to find the analysis that’s being used to make decisions isn’t even correct, because the basics just aren’t in place to underpin it.
Several businesses we’ve worked with in the last year had fallen into that trap and were spending a lot of time and resource on allocating everything to departments and apportioning their overheads, but had no idea how much money the company actually made. The basic facts were obscured by the detail.
So please, before you go and get all fancy, get the basics in and working like clockwork. Remember that financial control is all about routine and discipline. Then gradually build your detail on to the basic information. But before you do, be clear on what you need to know and why you need it.
I’m certain that if we kept things a bit simpler we’d all make more progress in the right direction. So much time, effort and energy is spent making things more complex than they need to be. Let’s get back to basics!