What Your Accountant Doesn’t Know About Growing A Business – And What To Do About It
by Ben M. Bartlett
in 2010 I spoke at an annual conference for businesses involved in the solar industry on a topic I controversially titled “What Your Accountant Doesn’t Know About Growing a Business – and What to Do About It.”
My presentation wasn’t so much a dig at accountants or the accounting profession. Rather, I presented the view that many traditional measures of financial performance, such as the profit and loss statement, are inadequate for analyzing business performance. And, they do little to help business owners figure out what they need to do to improve business results. Let me explain why.
In my presentation I used the analogy of a rugby game and – with the help of my youngest son who was my right-hand man for the presentation – performed some simple rugby moves or tactics in front of the audience.
As I explained to the audience, in performing these moves our goal or outcome objective was to score. But, in order to score we needed to perform the moves properly. There needed to be a start point, a sequence of steps in between, and an endpoint, which was the actual scoring. We needed to focus not so much on scoring, but on the tactical process.
Now in competitive sport, all good sports coaches have outcome based objectives they wish to achieve. And the primary outcome-based objective in sport is to score more points than the opposition. However, the best coaches know that scoring more points – or outcomes – is a matter of doing three things right:
Ultimately, these coaches recognize that it is strategy, tactics and execution that creates the score – or outcomes. And so, they focus not so much on the outcomes – but on improving strategy, tactics and execution.
So what does this have to do with business? In business the ultimate measure of performance is profit. But what is profit? It is an outcome. It’s like scoring a try in rugby, a touchdown in gridiron, hitting a home run in baseball or sinking a putt in golf.
And accounting? Accounting is the act of keeping the score. Therefore you can liken your accountant to the scorekeeper and the financial statements as your scoreboard.
Now here’s my main point. Financial statements give you the score. But, they often lack critical data you need to improve the score. More specifically, they don’t tell you why or how the score – or profit – was produced. In other words, they don’t explain why your strategy, tactics and execution performed a particular way.
As stated above, traditional financial statements are like a sports scoreboard. Yes, they can give you the score. But, they lack critical “why” and “how” data you need to analyze and strategize. And this, quite frankly, is the most crucial information you need to know if you want to get better.
Despite sounding like a broken record, I need to reiterate these points because they are so important:
You don’t improve business performance just by looking at the score. In other words, the outcomes found on profit and loss statements etc. What you need to do is look at the specific strategies, tactics and execution that generated those financial outcomes.
Furthermore, to improve performance your role as a business owner is to focus on improving:
- Business Strategy
- Business Tactics
- Business Execution
How? Let’s briefly get back to the sporting scenario to give you some insights.
In any sporting situation well-coached teams will have an a overall strategy, which is a clearly defined direction or style of play – based around the teams’ strengths. They also have a series of set moves, tactics or maneuvers which they learn and then execute on the playing field. For instance, in all the sports teams I coach we have a playbook or playlist, which is a collection of all the team plays and tactics. Each player must know the moves, and we spend a lot of time in training rehearsing them, so they can then be executed on the playing field.
And the purpose of these moves or tactics? To create scoring opportunities for the team.
Relating this back to business? In business you need an effective business strategy, which is a clearly defined direction – based around your business’s strengths and competitive position. And from a strategic standpoint, your business needs to be perceived by your target market as the best choice for them.
You also need a series of business moves, tactics or maneuvers which you and your team need to learn and execute on the business playing field. Primarily these are your branding, marketing and sales initiatives that generate brand awareness, opt-ins or leads – and then monetize that brand awareness by converting leads into customers. This is what creates more financial scores for your business.
Let me reinforce these important points just one more time.
- In business, profit is an outcome.
- Financial statements are like a scoreboard. In other words, they tell you what the financial outcomes are.
- To improve business performance, you don’t focus on outcomes, you focus on the strategies, tactics and execution that create those outcomes.