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I am not much of a poker player. But I do know a little about it. Experienced players can identify “tells” in other players. Tells are small clues that give you an indication of the hand of that player. Identifying these tells correctly gives you an advantage in that you can then assess the amount of risk you want to take betting on the hand.
Now I am not saying that business is the same as gambling….that is how non-business owners sometime think of it; one big crap shoot and business owners have to take big risks to get ahead. But that is far from the truth. Business owners want to take calculated risks. This is very different than the “all in” idea.
What I am saying is that you can identify “tells” in your business too if you know where to look. And you can identify areas where you might be bluffing……yourself. Then it is just a matter of learning how to interpret the tell. So how do I find your tells?
The state of your records – Just looking at how organized things are gives me a sense of how dilegent you have been with the financial aspects. What is the most current financial statement that you have available? Can you put your hands on a given item without digging through piles? I know that when we have run full tilt in the business it is easy to get sucked into the chaos and as long as there is enough money in the bank, the details get lost. Long term, this is a tough way to operate. Decisions made in chaos end up costing one way or another.
The level of planning that you are doing – This is very related to the the state of the records but is a little different. Do you have a budget? What time frame does that cover? Is it appropriate for the stage your business is in? Is the budget reflected on the financial statements or is there an analysis done comparing budget to actual and why there is a variance? Have adjustments been made to the future budgets?
The ability of management to explain the current financial state accurately – even if “management” is just you. Does your/their assesment match what is reflected on the financial statements? Do you understand the fiancial weaknesses and strengths? Do you have confidence that you have the financial resources to execute your future vision?
Procedures and decisions that aren’t based in logic – If I ask you a “why” question and I get a non-answer like “well that is the way it has always been” or “that is just the way it is”, then I know you are bluffing yourself. My guess then is that you either haven’t thought about that item recently and it is just a carryover from another time or it was a decision based on emotion rather than logic. You might be surprised at how often emotion is the overriding factor in the decision making process. How well can you explain how and why you are making decisions?
Just as a poker player can learn over time how to identify tells in another player, so can a business owner learn to identify the tells in his finances. You can start this process by looking at these four areas and try to give yourself an honest assesment of how you are doing and how you can improve.
What are the tells in your business?
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