I see a lot of founders taking what I call the ostrich approach to their finances.
Head in the sand.
They avoid looking too closely at the numbers and instead carry on running the business on instinct.
On the surface there are lots of reasons people give for this. But in my experience it usually comes down to two things.
Fear.
And understanding.
The first is fear. Some founders are simply scared to look at the numbers. They worry that if they dig too deeply they might find something they do not want to see. So they carry on, hoping things improve.
The second is understanding. If someone does not really understand financial reports, they do not see the value in them.
You often hear things like:
"We have always done it this way."
"I can see the cash in the bank so we must be fine."
"I run the business on gut feel."
And to be fair, that approach can work for a while. Plenty of businesses reach a decent size operating like that.
But there is always an element of luck involved.
Looking at your bank balance tells you where you are today. It does not tell you what is coming next.
Without proper financial insight you cannot see margin pressure building. You cannot see cost creep. You cannot see whether a part of the business is quietly underperforming.
And sometimes the missed opportunity is even bigger than the hidden problem.
I worked with a business that had three divisions. The company was doing well overall, but they had never split the numbers properly between the divisions.
When we finally looked at it closely, one of those divisions was loss-making.
By shutting that division down, the business immediately increased its profit by around twenty percent. They were also doing less work.
But they did not know that was possible because they had never looked closely enough at the numbers.
Running a business purely on gut feel can get you surprisingly far.
But it also means you cannot see what is coming up the road.
And sometimes it means you are working harder than you need to for less reward than you deserve.
More to come,
Luke