Are You Solving the Wrong Problem?

A business owner looks at their financial information and realizes they aren’t getting the answer to a question that matters.

Maybe they want to know whether a particular service is really profitable. Maybe sales are increasing but cash still feels tight. Maybe one area of the business seems to take a disproportionate amount of time, and they want to know whether it is worth continuing.

Whatever the question, the first instinct is often the same:

“I need a better report.”

It sounds reasonable. If the numbers aren’t giving you the answer, surely the solution is to get more detail from the numbers. But before looking for a different report, I would ask a different question.

What are you actually trying to decide?

That distinction can change the entire direction of the conversation.

Start with the business question

Let’s say a business offers two services. Both are selling well, but the owner has started wondering whether one of them is worth the amount of time and effort it requires.

They open their income statement. Revenue from both services is included, but there is nothing that allows them to compare the two. Expenses are grouped by type rather than by service. Some of the relevant costs are sitting in another part of the business’s information, and the owner’s time isn’t being tracked at all.

There isn’t a report that will magically answer the question.

At this point, it would be easy to conclude that the accounting system isn’t good enough. But that conclusion is premature. The first thing to clarify is what the owner means by “worth it.”

Are they asking which service produces the most revenue? The highest gross margin? The greatest profit after direct costs? The best return for the time involved? Or whether the service contributes enough to the business to justify keeping it at all?

Those are different questions and they require different information. This is why I prefer to start with the decision rather than the report. Once you know what the business owner is trying to decide, you can work backward to determine what they actually need to know.

What information would answer the question?

Suppose the owner decides that they want to compare the contribution each service makes to the business, taking into account both direct costs and the amount of time required.

Now we have a clearer picture.

We may need revenue by service, direct expenses associated with each service, and some reasonable way of understanding the time involved. There may be other costs worth considering too, depending on the decision. The next question becomes:

Which of that information do we already have?

This is where the investigation becomes more interesting. Perhaps the revenue is already separated, but the expenses aren’t. Perhaps the expenses are available but recorded in a way that makes them difficult to connect to a service. Perhaps time is being tracked somewhere else. Perhaps some of the information isn’t being collected at all.

None of those automatically means the existing system is wrong. It means we now know where the difficulty lies. And that’s very different from simply deciding that the report is inadequate.

The information has to come from somewhere

Once you know what information is needed, the next question is how it can realistically be obtained. This is where business processes matter. It is easy to say, “We should track that.” It is much harder to create a process that someone will actually follow consistently.

If a new piece of information is going to be useful, someone has to capture it. They need to know when to capture it, how to categorize it, and what to do when something doesn’t fit neatly into the process. The process also has to make sense for the people doing the work.

This is one reason I don’t start with the software. A software feature may make something possible, but that doesn’t make it useful for the business.

The better question is whether the process will produce reliable information without creating more work than that information is worth. There’s a balance to find.

The Cost of More Information

Once a business discovers that its current information isn’t enough to answer important questions, there can be a strong temptation to start tracking everything. Every customer. Every activity. Every hour. Every expense. Every possible category. More data can feel like more control.

But information has a cost.

Someone has to enter it. Someone has to maintain the process. Someone has to make sure it is being recorded consistently. And, most importantly, someone needs to actually use it. If the business never makes a decision based on the information, it may not be worth collecting.

The objective isn’t to create the most detailed financial picture possible. It’s to create an information system that helps the owner understand the business well enough to make the decisions they need to make.

What this looks like when you do your own bookkeeping

If you handle your own bookkeeping, September can be a particularly useful time to pay attention to where you’re struggling.

Perhaps you’re behind because you simply haven’t had time. In that case, catching up now can make the rest of the year easier and reduce the pressure that often arrives with year-end and tax preparation.

But what if you notice that you keep getting stuck in the same places? Maybe there are transactions you repeatedly aren’t sure how to categorize. Maybe you have information sitting in several different places because the bookkeeping doesn’t capture what you actually want to know. Maybe you can produce the standard financial statements, but they don’t answer the questions you ask about your business.

Those are worth noticing.

The bookkeeping task may be the visible problem, but the repeated difficulty may be telling you something about the underlying process. Instead of simply pushing through the same problem again, ask why it keeps occurring. That question can lead somewhere much more useful.

What this looks like when someone else does the bookkeeping

Outsourcing the bookkeeping changes who does the work. It doesn’t remove the owner’s need to understand what the information is telling them.

Your bookkeeper may be keeping everything current and doing exactly what has been requested. That is important, but it doesn’t necessarily mean the resulting information is giving you the insight you need to run the business.

You don’t need to become your own bookkeeper. You do need to be able to look at the information and ask questions about whether it reflects the way you think about your business. Does it allow you to see the things that matter to you? Can you answer the questions you regularly ask? Are there areas where you repeatedly have to pull information from somewhere else because it isn’t available in your financial information?

Those questions aren’t criticisms of the person doing the bookkeeping. They are business questions.

And sometimes the answer is that the bookkeeping process needs to change. Sometimes the answer is that additional information needs to be collected elsewhere. Sometimes the existing information is sufficient and the owner simply needs a different way of using it.

You don’t know which until you start with the question.

Work backward from the decision

There is a simple pattern underneath all of this:

Decision → information needed → where the information comes from → how it is collected → how it will be used.

The order matters.

If you start with the software, you tend to ask what the software can do.

If you start with the report, you tend to ask what the report can show.

→ If you start with the business question, you can ask what the business actually needs.

That shift can prevent a surprising amount of unnecessary work. It can also prevent the common cycle of changing systems, adding reports, creating more categories, or collecting more data without ever getting closer to the answer.

September is a good time to ask

Harvest is about taking stock of what has grown, what has produced something worthwhile, and what needs attention before the next season. There is a useful business parallel here. September gives us enough distance from the beginning of the year to see what is happening, while there is still time to make changes before year-end. That makes it a good time not only to catch up on unfinished bookkeeping, but to look at what the information is actually doing for you.

What decisions are you trying to make? What questions keep coming up? Which of those questions can your current information answer?

And where do you find yourself saying, “I wish I knew…”

Those unanswered questions may be more valuable than another report. Because sometimes the real problem isn’t that you need better numbers.

You need your numbers to be connected to the questions your business is asking.

 

If your business keeps raising the same questions but your financial information still isn’t giving you the answers, it may be time to look at what sits behind the numbers. Book a complimentary call to explore how your financial tracking and information flow are supporting your business, or subscribe to my newsletter for practical insights on building stronger business systems and making more confident decisions.

 

Lynda Davidson, LD Business Focus
Quickbooks Advanced ProAdvisor & Business Systems Strategist

Helping business owners get clear, reliable information from their systems

 

photo by L. Davidson – Scotish stone cottage and evestrough