As accountants, the headline on this article caught our eye:
In short, the Council thought the pool would cost $7.7m to keep open. They used that as an excuse to close the pool. In comes a local swim coach and finds a $5m hole in their numbers. Queue the obligatory apology – “staff agree there is a substantial error in our calculations and the estimated cost could be up to $5 million less than what was originally projected”.
Wow you think. How does this happen. Well, there’s two reasons (and tip: we’ve all got them in our businesses).
- An error in the numbers
- Relying on gut feel, instead of double checking
The Council here obviously made a monumental error in a spreadsheet. The error in our businesses can’t be as big as what the council did, but a $5m error for Council could be as significant as a $5k error in your business.
Relying on incorrect data is one of the most fundamental errors we see businesses making. When you couple incorrect data with gut feelings you’ve got a recipe for disaster.
That begs the question of how you make sure you’ve got good data. There are two things. Firstly, look at outsourcing your bookkeeping (it looks easy, and it looks like Xero does it for you – the truth is a little different). For more on this, checkout this article and find out why accurate data comes down to accurate bookkeeping. Secondly, make sure your Xero account is in tip top shape. For, checkout our eBook packed with simple tutorials to help you master Xero.
Your gut feeling
We all rely on our gut feelings from time-to-time. The Council did by not double checking the basic maths in a spreadsheet and it bit them. I have, and it’s bitten us (bad internal data making us lose money on a chunk of jobs).
Aside from numbers being out, gut feelings being off the mark are the second biggest issue we see in businesses. Most people correctly trust their gut 9 times out of 10 – business owners know their businesses inside and out. This is about the 1 time out of 10 that someone’s gut feeling is off.
The business owners we’ve seen who don’t rely on their gut feeling do two things. Firstly, they run their decisions past someone external to the business (not for approval, just as a sounding board). Then secondly, they don’t make decisions in isolations (they work to a cohesive plan rather than just jumping from fire-to-fire).
Some businesses work through their gut feel with Business Coaching (which we’re not massive fans of to be honest – it has its place, just a limited place). Alternatively, others work through a Diagnostic to identify a prioritized set of recommendations to get to a particular outcome (like selling a business or increasing profitability) in an agile and emergent fashion. For more on a Diagnostic, drop us a note.
So, what to do?
In short, there’s two things to prevent the $5m error happening in your business:
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