You Want to Build a Better Business, Pt. II

You didn't start a small business to get by. You certainly didn't start one to fail. You started a small business so you and your family could be financially better off (or way better off). If you're already there, congratulations! We can give you the reporting you need to keep what you've built. And if you're not already there, Origami can help you get there. We've worked with thousands of small business clients over the years, across Canada and across a wide range of industries.

Seeing all these trajectories, we wondered if differences in the approach owners took to managing their businesses help predict differences in their financial results. Specifically, some owners were more on top of their monthly results than others; they were making more of an effort to understand their numbers and set direction by them. Did they get better results? We did the research, and it turned out these differences we were seeing did matter. Small business owners who "steered by their numbers" consistently produced better results.

This was eye opening. From experience, we knew that though all small business owners want financial success, only a small percentage of them achieve it. What we found was a way to improve the odds. So we took what we learned about how our successful small business owners work on building their businesses and we made it the focus of our own approach.

The core idea is before you can have a successful business, you first have to have a better business. And a better business isn't something that just happens. A better business is something that you build. You don't just go to the driving range; you go to the driving range and try to hit a specific target — over and over and over and over. You go with a purpose. It's the same in business. And whether you have the business you want or not yet, you have to approach it with a purpose; you have to constantly be building it.

What is a better business? A better business is one that's financially healthier than the one you have now: more sales, more profits, more cash in the bank. And it's better if it's paying you, the owner, more in total compensation. (Unless you see a clear reason to leave that money in the company and earn a better return.) When it comes to small business, that's it. That's everything. Everything you do is with those ends in mind. How do you do it then? How do you build a better business?

The Financials

The first thing you have to do if you want to build a better business is pay attention to how your business is doing right now. And the best way to do that in small business is with timely and reliable financial statements. Financial statements have been around forever. They're a big part of the language of business. They communicate the financial results for any business, big or small, in a standard, easy-to-understand form. If you live in the business world, you gotta learn the language. Because if you don't bother to learn, you're going to spend the better part of your days confused, the "one-legged man in an ass-kicking contest" according to Charlie Munger.

Financial statements show you the essential numbers for your business: sales, profits, cash flow, your money in the bank. Think of these numbers as heart rate and blood pressure, the vitals that tell you what kind of condition your business is in. You have to be aware of the condition of your business at all times. Small businesses go from healthy to sick to walking dead to deceased much quicker than human beings do. It's not knowing and not paying attention that puts your business most at risk. And it costs you so much time. Look at it this way. Investors use financial statements all the time to figure out if a business is worth owning or putting their money into. And, if they decide to invest, they use financial statements to see if their investment is paying off.

Why is it any different for you? After all, you're your business's primary (or sole) investor. You need to make sure your investment is generating returns. You're also the CEO, the person responsible for producing those returns. In both roles, you have to understand your financial statements and use them to make your decisions. Just like the investors and CEOs of bigger businesses do, just like the owners of successful small businesses do.

Financial reporting is the core part of our service. Your Origami Accountant will ship you financial statements each month that you can understand and use to manage your business. Each monthly report includes a one page Origami Scorecard that highlights how your business performed on the essential financial numbers. The Origami Scorecard shows your actual results, your results against your targets (we'll get to those), and the short-term and long-term trends in these numbers. Your Origami Accountant will also prepare notes to highlight wins and losses (issues) so you don't have to guess or hunt around. With the one page Origami Scorecard, you'll quickly see if your business is moving in the right direction, specifically if you've made the progress you planned — and you'll know what you need to work on if you haven't.

Think of the Origami Scorecard as a primer for your financial statements. If you're not comfortable with reading financial statements (it's OK; most small business owners aren't), we're going to do our best to set them up cleanly and show you how they work. In the meantime, we're not going to throw you in the deep end. The Scorecard tells you what you need to know. As you get more comfortable, you'll probably want to dig into the details. The Scorecard will always give you the key numbers you need to know and pay attention to as you go about building a better business.

The Plan

The second thing you have to do is plan your financial numbers. This means setting goals and targets for what they'll look like as you build your business. If you don't do this, if you don't plan how your business is going to do better financially step by step, then trust us (if you don't already know), years will go by and you'll make no progress. We've seen it happen way too often. Small business owners will say they want to do better, but they won't sit down and plan out the steps they need to take to get there. Result? A random walk. A step sometimes forward, sometimes back. Years go by. Where do these owners end up? Pretty much where they started.

(If they're lucky. By that point, they've likely taken on debt, they've likely had less disposable income than if they'd worked for someone else, they likely haven't saved money, they likely haven't advanced their employment potential. That's a pretty big deal when it comes to a decade of someone's life.)

The plan for your financials is really quite simple. We're not talking space travel or forecast your sales and employee count five years from now. We're talking about setting targets for the essential financial numbers for the next three, six, or twelve months. Your plan should be crystal clear and very concise. Your objective is to be at point A in 3 months. If you don't get there, it doesn't matter one bit what you were so darn busy doing.

The essential financial numbers are sales, net profit, operating cash flow, and cash in the bank. That's what you need to pay attention to and manage; small business success comes down to thinking about and delivering on these numbers, one step at a time.

Building a better business is building financial strength. To build financial strength, a small business needs growing sales, a reasonably high net profit margin, reliable operating cash flows, and a solid cash buffer in its bank account. In order to set short and medium term targets for these numbers, you'll have to think about your business systematically. What does it actually do? How does it do it? How can things be improved? When you're busy serving customers and running the day-to-day, you rarely find the time to work on your business instead of in it.

But that's the most important time you'll spend if the goal is to improve. To build the better version of your business, you have to take time and take stock of how the business is built right now. Thinking about targets forces you to think about how you can achieve them. You have to find the parts of your business that run well, the parts you can replace or renovate, and the parts you need to tear down and rework from scratch. Take the business apart. Focus on what works. Build the better version.

Setting goals and targets also means you're committing to achieving them. In our experience with thousands of Canadian small businesses, successful small business owners first set targets and goals and then they work at achieving them, step by step. There are all kinds of paths your business can take; most of them are no good. Find the good paths, commit to them, take them.

Focus

The last thing you have to do is focus. You want to build a better business. You've set short and medium term financial goals. You've come up with a plan to hit those goals. You know by regularly reviewing your financials whether your plan is working; you're either getting closer to your goals or it's time to change things up. You're committed to this new approach to running your business.

Now comes the hard part. There are a million things that will "come up" to distract you from your objective. A detour for short term money. A crisis here, a crisis there. Things thrown at you that you can't control. You can't lose focus. You have to train like an athlete. You have to practice like a musician. You have to program your work and do it like you're training for a championship or a career-defining performance.

We can help you here too. Each month on the Origami Scorecard, the notes from your Origami Accountant will draw a bright circle on your financial results that says "focus here." We've set up our system so that the one thing your Origami Accountant cares about most is that you set and hit your financial goals. Your Accountant doesn't get distracted. She'll look through your financials each month and see if you did what you said you'd do, and if you're actually on track. If you're not, she'll point it out. You might get distracted but she won't. That's because she wants you to win.

We talked in the first post of how difficult it is for regular folks to hold themselves accountable for commitments that affect them the most. It's easy to let those commitments slide because, hey, we're the only ones who get hurt. The preparer notes on the Origami Scorecard are a simple but effective accountability system that's built in to our service. It's a little voice that cares enough to keep you focused on achieving your goals. When you're in small business, you don't always have that.

---

Thanks for reading! If you're ready to start building a better business, give us a call at 1-888-745-1315 or get in touch with us by filling out our Get Started form. We're always happy to hear from you and learn about your business. We'd love to see your small business succeed, and we'd be proud to be a part of your success.