“I’ve run this whole show off of a gut feeling, and I’ve never run into any problems.”
Before 2020, having this kind of conversation with clients was the status quo for how their business operates. All things being equal, relying on instinct alone seemed to provide them all the insight they needed to navigate toward success.
But what happens when the world turns itself upside-down?
During the pandemic, no one could predict future events.
Suddenly, depending on your gut to chart the course ahead spins us into a constant state of chaos.
Now, let’s get something straight right off the bat…
I’m not here to put the kibosh on following your intuition. In fact, it often leads us exactly where we need to go.
However…
As the analytical angel hovering above your shoulder, I can’t condone a gut-instinct approach to every aspect of running a business.
Because the reality is, even if you are seeing insane results from what you’re currently doing, profits tend to mask weak processes.
And the bigger your business gets, the harder it becomes to run the whole thing on feeling alone.
So instead of looking into our crystal balls for guidance on the future, let’s talk about the value of a different kind of forecasting instead.
Your Books Can Guide You to More Informed Business Decisions
Forget tarot decks.
When it comes to making sound financial decisions, a clean set of books will tell you everything you need to know about the past, present, and future.
Now, if you’re just starting out, you may not have all the information you need to understand the situation in front of you. But over time, those financial statements will develop patterns in the data points. And those patterns will tell a truthful story about your unique business.
Let’s take a look at just two of the many different patterns that could reveal themselves to you when you consult the books.
Example No. 1: Not all Margins Are Created Equal
After a couple of years, you may notice your business pulls in fairly consistent margins and everything seems okay.
But after a little bit of digging, you may realize that certain clients aren’t delivering quite the same margin that others are, or that you are losing money in certain selling certain products or services.
If that’s the case, it may be time to rethink what you charge those clients or how you sell your products.
Example No. 2: Quarterly Patterns
If you’re relying solely on your gut, you may not be aware of the ‘why’ behind profit fluctuations.
Let’s say your margins always dip in the first quarter. After identifying the issue and diving into the books, you’ll see that resources are tighter in Q1, and therefore cost you more.
In a scenario like this, you can plan ahead and shift the work to Q2 to save money.
Sure, it may seem like a small, unimportant detail.
But over the years, slight adjustments like these can make a world of difference to your small business’s bottom line.
History Matters.
Humans lie. Numbers don’t. (Well, if they’re calculated correctly.)
Even with the best of intentions, many business owners can end up lying to themselves about how well their businesses are doing or relying on a history that’s no longer true.
The fact is, when we leave our brains to fill in the details, we often end up with a story that is completely out of alignment with the true story behind the numbers. You can’t let the happen with financial forecasts of sales forecasting.
If you’re under the impression that you’ve got 30% margins, but the books are showing that you’ve never broken 20%, then you’re falling victim to a lie you don’t mean to be telling.;
And worse yet, you’re making business decisions based on that lie.
So no— I’m not against relying on a gut instinct.
However…
As you can see, relying on those instincts alone can cause you to veer off the course of success, or keep you from ever reaching your business’ true potential altogether.
The moral of the story is this…
Rely on your intuition for big picture thinking. But make sure your financials are telling the same story.
Not an analytical type? Prefer to swim in the deep, creative waters of the right brain?
Don’t worry, I’ve got you! Hire a professional today to help make sure your vision and your books are aligned.
