Every business owner has a big vision for their company and wants to make it happen. However, most don’t follow a unified strategy to get there. Leaders often have trouble pulling the trigger on spending money on people or new strategies because they don’t understand what their numbers are telling them.
Many business owners haven’t fully appreciated accounting as “the language of business”, as Warren Buffet states. It’s seen as a necessary evil to pay bills, invoice and collect, and provide monthly accounting statements. Often, owners take a glance at the P&L to be sure they’re making money, without a look at the balance sheet or the cash flow statement. Instances like this are what makes accounting the number two weakness in growing firms in my experience (the number one weakness is marketing, but we’ll save that for another day).
Accounting is under-appreciated, therefore, often underfunded. Most business owners will take those extra profit dollars and invest them in more sales or more production. However, one of the richest men of all time in U.S. history was John D. Rockefeller, an accountant by training.
Rockefeller frequently hired people to support his CFO or carry some of his executive workload. These people focused on:
1) Better cash flow management.
2) Charts and graphs of more granular accounting data for better decision making.
3) Trend analysis and early warning systems to support better prediction.
These investments he made paid off handsomely with increased profits and cash flow.
Rockefeller believed the ability to slice and dice a company’s financial data was critical in order to allow the leadership team to view gross margin, profit, and cash flow by categories like customer, location, product line, and salesperson. It’s important to look for positive and negative trends in these categories to make decisions about what to hold on to and what to let go of. After all, what is strategic about losing lots of money?
He also viewed prediction as a fundamental responsibility of leaders. Accountants hold the view that the best indicator of the future is the past. Many fast-growing firms see that incremental sales growth often comes at the price of profit fade, meaning a lower gross profit margin. Trend analysis shows you what is driving the reduction of gross margin and helps make course corrections.
In your business decisions, think of W.W.R.D. (What Would Rockefeller Do?). He would invest in his accounting team to analyze data and make better predictions. These investments paid off well for him and they will for you too.