Can you trust your numbers?

3 things to look out for before you make your next financial decision

Part of owning a business is being a big picture thinker. You’re not always going to be the one crunching the numbers or spearheading the research – you just don’t have time. Heck there are probably days when you don’t even get to look at the newspapers or watch the news, much less pour over the numbers.

But delegating responsibility for being across those numbers does come with its own set of pitfalls.

A recent study has revealed a huge and potentially dangerous discrepancy between perception and reality. The findings indicated that more than half of C-suite respondents were confident that their financial information was accurate – which is as it should be. Unfortunately though, the financial professionals surveyed begged to differ. Only 32% of financial professionals thought those numbers could be trusted.

Now to be fair, C-suite and financial folk are meant to have different opinions on this – it’s part of their job. Any analyst or financial professional worth their salt knows that there is no such thing as absolute certainty. And, in fact it’s good business not to trust big promises – good financial professionals are usually pretty conservative.

Conversely, part of being a business owner or leader is knowing how to build confidence, sometimes that means taking data that you have reasonable confidence in and selling it as if it’s fact. Not lying per se, but putting the best of the information forward. As you’d know from your time in business, leadership rarely comes with clear black and white decisions and as long as you don’t have your head in the clouds the right decision is often just the one you make and then work to make right.

However…

There’s optimism, blind optimism with a good serve of risk taking on the side and then there’s blindly sticking your head in the sand and ‘hoping’. And sadly, financial professionals are often the ones having to sort this for clients when things don’t turn out the way everyone had hoped.

Just because you aren’t looking, or don’t want to look at the problems doesn’t mean they aren’t there. That can be painful, especially when you’ve already invested time and energy into a project and the numbers start to tell you it’s not working out.

Worse still incorrect numbers can lead to bad decisions. A whopping 92 percent of survey respondents said yes, they had made business decisions based on information that turned out not to be true.

So how do you know what to trust? Well, nothing is ironclad but there are measures you can take to try to keep your facts… well, factual!

1. If it seems too good to be true, it probably is.

Sure, anything is possible. Maybe there really is a new and rising trend and you are in at the ground floor. Maybe you’re the business equivalent of Madame Esmerelda, predicting the next big thing with pinpoint accuracy and reaping the benefits. It’s not out of the question, but it is unlikely.

Historically, some businesses have learnt this the hard way. Near the end of the DotCom bubble of 2000/2001, AOL (America Online) made what they insisted was the sure-fire success merger with Time Warner, a giant of the communications landscape. Even at the time, objective analysts said the numbers didn’t add up and sure enough when the bubble burst the merger cost both companies dearly losing a combined total of around 100 billion USD.  It could have been avoided, the good data was out there, but someone in charge saw potential dollar signs and the rest is (expensive) history.

2. Get an outside opinion.

The thing about inhouse accounting is that financial staff members are just like everyone else who works for you – they don’t want to give you bad news. They don’t even want to give you the ok news. Yes even if you are ‘World’s Nicest Boss’. Just like every health food company that’s ever done their own ‘research’ to confirm the next big super food, your people are perfectly capable of conducting research that is technically true but practically irrelevant so long as it sounds good and makes the boss (you) happy. By getting some outside help from an objective third party, like your accountant, you can get advice from someone with some distance, someone who doesn’t have the idea that you might fire them tickling the back of their brain.  Your accountant is all about making sure you’ve got the right information to help you get things on track and thriving – not to make you feel good whilst your business goes under.

3. Don’t be afraid to take risks.

Analytics and predictive algorithms can do amazing things these days and yes, you should absolutely be utilising them in whatever way you can. However, they aren’t foolproof, and they aren’t fortune-tellers. If you think you’re on to something and the numbers haven’t caught up yet, do your own research, see if you can see the beginnings of a trend and maybe start to lay the ground work to follow that track. After all, the only thing sweeter than keeping up with the curve is getting ahead of it. Again, this is where a good accountant will come in handy. If you’ve got the financial wiggle room to get a head start on your hunch, your accountant can help you navigate that in a way that lessens the risk of financial ruin in the process.

So if you’d like to get an honest perspective on your business’ finances for growth,  consolidation or even sale and exit, we’d be delighted to help. You can call us on 02 6023 1700 or drop us a note via the form below.