Definition of (business) insanity?

Posted: August 5, 2013 in Business Financial Statements, Up-and-running Business
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We all know about the standard (non-medical) definition of insanity: “.. doing the same thing over and over again and.. expecting a different result.” It seems logical to take this one step further: ” It didn’t work before, (and the time before )so, why do you think it will work now?”

Amazing as it may seem, this happens all the time. Here are a few business moves that I have seen business owners make in the face of contrarian results:

  1. Chasing revenue to cover bloated overhead.
  2. Using the same sales channels to chase non-existant revenue.
  3. Hiring salaried staff when hourly staff would be a better fit.
  4. Using revenue as the sole metric to evaluate business performance.

There are many others but, these are actions (reactions?) to a business that has problems and one in which management feels that more revenue alone will fix.  Small business management needs to have a clear understanding of their business model and regularly evaluate whether the business model works.  If the business is losing (accounting) income over a protracted period, the model is not working.

There is information that accountants must provide small business owners:

  1. Comparative metrics for both revenue and gross profit margins.
  2. Comparative metrics for (revenue) breakeven points.
  3. Fixed cash burn rate.
  4. Forecasts for profit and loss and cash flow.

Easier said than done unfortunately.

 

 

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