In April 2009, the bailout was going to cost U.S. taxpayers $356 billion, according to congressional budget analysts. A year later that figure was revised down to $89 billion. When the health-care reform bill was being debated, some put the cost at more than a trillion dollars, while others indicated it would actually reduce the deficit. About a month ago, the European Commission reported that Greece’s public-sector deficit for 2009 was 13.6 percent of GDP, significantly higher than the 12.7 percent the Greek government had previously estimated. Greek Finance Minister George Papaconstantinou was quoted as saying the revision “may spark fresh market concerns.” Kind of an understatement. Since then, stock markets have fluctuated wildly and the euro dropped to a 14-month low as European nations increased their bailout from $139 billion to nearly $1 trillion.
Imagine running your business on unreliable numbers. You’d get crushed. Most business owners can’t afford to operate that way. Like a good baseball manager, the smart ones I know frequently pore through their data. Sure, it’s boring as hell. But so was watching the finale of Lost. But in this case, it’s worth it. Every month, sometimes more, they print out a detail of their general ledger transactions and read through them. They make sure they understand who’s getting paid and what they’re getting paid for. They highlight and investigate those transactions that raise an eyebrow. By participating in this exercise, they get comfortable that the underlying data supporting their financial statements are consistent and reliable. Good data need a human review once in a while.
Daily “Flash” Reports
Smart business owners know the value of having reliable data. That’s why they analyze them frequently. They don’t wait for a crisis to occur. They don’t suddenly create numbers out of the blue a few days before a big decision needs to be made. They don’t wait until the end of the year to see how things went over the past 12 months. Many guys I know have a daily “flash” report. On this one-page report, they see key metrics that impact their business. There are common numbers like open receivables, payables, and cash. And then there are numbers that are more specific to their business, such as backlog, overtime, productivity per employee, or complaints recorded. These numbers are pulled from the same financial system with the underlying general ledger data that they’re taking the time to read every month.
And over and above this “flash” information, smart business owners I know invest in key reports. They’re putting information into databases which can then be extracted and used to focus assets. A few years ago, I hired someone to write a couple of custom reports. These reports tell me how many sales I make vs. the quotes I produce and how billable and productive my service people are. A friend of mine is more interested in gross profit per item produced-she also hired a consultant to create a custom report to give her that data. Having good data is crucial for making good decisions.
A trend I’m seeing now is alerts. Most business software applications allow users to set rules so that they can be warned when something falls above or below a certain threshold. Smart business owners are taking advantage of these features. One guy I know gets an e-mail every time a key raw material is close to being out of stock. Another guy I know gets a text when a significant customer’s receivables balance goes over 90 days. Does your software do this? If not, maybe you can hire a consultant to create “triggers” in your underlying database to do the same. (Full disclosure, I do this for a living, so it’s in my interest to tell you this.) Most common databases, like Microsoft’s (MSFT) popular SQL Server, have this feature available.
Monthly Bank Reconciliations
Another thing smart business owners do to get reliable data? They reconcile their bank accounts. Duh! Most of them can’t afford two tickets to a Major League Baseball game nowadays, let alone having those complex internal controls that big companies have. But that’s O.K. They have cable TV. And they make sure their cash is tracked accurately. Many owners I know hire an outsider, with no control over their cash, to do a monthly bank reconciliation. A separate set of eyes sometimes sees things that they don’t-questionable signatures, strange withdrawals, funny-looking transactions. Doing a bank “rec” isn’t hard. And paying someone by the hour to do it isn’t very expensive. But the consequences of not doing this could be devastating for their decision-making.
Bad decisions are often made because of bad data. Governments vote on huge legislative initiatives based on iffy information. Investors lose their shirts buying stocks in the dark. The Greeks overpay for their weddings. But the smart business owners I know don’t make such mistakes as often. If they do make a wrong move, it’s rarely because of shoddy information.
achsan uddin