Financial information and the avoidance of pain

It was the year 2000 and as I sat there digesting the figures, I felt myself go cold from the top of my head down.

Surely this couldn’t be right? It was the first time I’d actually got to look at the finance of my brand new client that I had worked so hard to get and the conclusion I was rapidly reaching was that they had lost about £400,000 in 6 months as a result of a strategic decision turning their solvent business into an insolvent one. Worse, they were under the impression that the difficulties they were having were cash flow problems caused by rapid expansion.

As my team have heard me say many times before, we are all motivated by one of two things; the gaining of pleasure or the avoidance of pain. And of two different timescales; short-term and long-term.

At certain times of the year, we often find ourselves working on the affairs of a similar group of clients to try and get their affairs in order before the deadline imposed by Companies House. Now we know that some of our clients enjoy getting their annual figures because of the satisfaction they get from understanding how their business performs. Many other clients have good accounting systems set up by us that gives them this information on a monthly basis.

But our clients that are not in either category may well put off getting end of year figures done because they bring what they would consider to be bad news (details of their tax bill). And they’re clearly not motivated by the avoidance of long-term pain because forward notification of the issues arising would allow them to make changes which might avoid some of the problems that some of those businesses have suffered for many years.

But that’s only a small section of our client base. What about everyone else? Well, some days we may come into work on a bit of an auto-pilot, perhaps a bit demotivated or going through the motions a bit. Is that us avoiding the pain of hard work or gaining the pleasure of doing things we’re comfortable with? It could be either, but whichever it is its short-term. Is it working towards completion of a contract that will enable you to pay for that holiday to an exotic place (short-term gaining of pleasure) or maybe to increase your income to invest in a long-term wealth strategy for a comfortable retirement (long-term avoidance of the pain of living in poverty!)?

But whatever your motivation, imagine what results you and your team could achieve if everyone performed their work every hour to the highest standard they were capable of delivering. Obviously that’s not possible but with the right stimulus we can all massively increase the number of “good” hours compared to bad ones.

The most effective businesses in this regard are really good at measuring all the things that make their business perform. On a simple level it might be the profit on your monthly management accounts. But on a more detailed level, its stuff like the number of invoices raised this month, new customers brought in, sales of products even clicks on the website and enquiries received. As we always say, “If you can measure it, you can manage it”.

Fortunately, and in case you haven’t noticed in the proliferation of adverts on the radio, we are going through a revolution in accounting software. There’s a three-way battle going on between Sage, Xero and Quickbooks. Sage has held the upper hand for a long time but in our opinion (and that of many we speak to) has under-invested in its technology. Xero is growing rapidly not just because of what the product does but because of its open database functions which allow other products to piggy back on its data. Crunchboards, for example, produces management information in graphical forms and allows you to incorporate other non-accounting data. Vend is an online sales and stock management system for the retail industry. There are hundreds of other products which “add on” to Xero.

Having top class information at your fingertips provides the stimuli for you and your team but should also guide a huge number of strategic decisions. In our business we have a set of KPIs which enables us to make short and long-term decisions and create consequences for good or poor work or good or poor decisions. If there are no consequences of decisions, staff may make poor choices based perhaps on self-interest.

Whilst some of our information goes back up to 17 years, (allowing us to see the trends in different areas) our information has evolved hugely over the years. Some categories of information have been dropped because they didn’t tell us anything that made a significant difference (all information has a value but it also has a cost) and other information has been added over time.

New information leads to new decisions. Sometimes that new information might simply be something which we have recorded for years but which now indicates that some long-held beliefs are no longer the case. It could indicate that a change of direction for your business is required in terms of its services, staffing, offices or systems. There’s no place for “because we’ve always done it this way” or “that’s the system I inherited so I’ve never questioned it”.

The information also makes us all accountable. Accountable for our time, for our performance and for our contribution to the overall results.

Accountability is crucial in any industry. Without it your staff can hide or can cover up poor results simply because no-one is looking. Or maybe they convince themselves that what they are doing is contributing to success even though perhaps it isn’t.

But what about those long-term impacts? Putting aside all those “urgent but not important” tasks you have to do every day, much of which is an investment in tomorrow. Staff reviews, systems, training…

If you’re still not sure about making the leap to a much better financial system, then the government might be about to make the decision for you. Making tax digital will require all businesses to file quarterly returns by 2018. The old technology is not going to do what you need it to do without a lot of extra manpower so why not make the leap now and get improved information about the performance of your business into the bargain?

Get in contact with one of our Principal Advisers on 01474 853856 to ensure you’re no longer left in the dark with your financial information. Things may have changed a lot since the year 2000 but there’s still no need to be in the dark about the performance of your business. A small amount of pain now in making the leap could avoid a huge amount of pain in the future.