Here’s another 2 linked topics from the list: not knowing how you are doing, and making it up as you go along.
The foundations of any sensible decisions are based on facts. And facts are based on data. Accurate, and timely data that you can rely upon. So the first thing is boring – make sure your bookkeeping is up-to-date and accurate. Now that integrated bookkeeping software is so cheap and easy to use, the ability to get information from the software has been greatly enhanced. You don’t need to guess. Time invested in keeping the books up-to-date is time well spent in helping you manage your business. It’s not just to keep the taxman happy – or your accountant!
You can now see what your sales are for each type of thing you sell, and your profits week by week or month by month. Whilst past performance does not always lead to good predictions of the future, it is very helpful to see where the trends are and from that you can formulate plans. And it’s a great motivator!
If you need to borrow money for any reason, don’t be surprised if the bank isn’t interested in lending to you if you can’t describe how you are doing. Essentially the bank is lending to you, the person. If the bank has to contact you because your overdraft has been exceeded, they will assume that you are not managing your business. They may well be right. If you have up-to-date information, you can be contacting them first and telling them what is happening, why, and what you are doing about it.
It’s also the basis of any planning. It informs your decisions so that they are based on some facts. Your decisions will be about the future which is to a greater or lesser extent, unpredictable. But your planning will be much better with good, accurate information at your fingertips. A lack of accurate information is still one of the greatest causes of failure in business.
Fairly obviously, if you do not have decent information to base decisions, you are making it up as you go along. You might get it right. But you won’t know why. Almost certainly part of your decision-making will be based on some wrong premise, but again, you won’t necessarily know which part and so you won’t know what you can do about it. You just have to guess. You’re guessing with your money and time. You can reduce the probabilities of failure, or more likely the lack of optimal results with some decent up-to-date records and some simple plans.
You don’t need to write formal business plans for every new little venture. You can do a lean start-up type arrangement. The important thing is to write something down – particularly the assumptions, as some of them will be wrong and until the light of experience shines on your venture, you won’t know which ones. If you’ve written them down, you can go back and quickly re-cast your plans with that assumption changed to what you now know is reality and see where that takes you.
It may not be bringing you in any sales but as you can see, it’s worth doing a bit of admin. We’ll talk about that in a later piece.