The numbers are therefore another member of the team. They may be the quiet employee who records what happened, challenges an assumption and occasionally points out that the owner’s favourite story has developed a rather large hole in it. They deserve proper attention, accurate interpretation and a place in every serious decision. They should never be mistaken for the owner.
A mate of mine has done well in life. He has worked hard, taken risks, built assets and created opportunities that many people would be pleased to call their own. Yet whenever the next opportunity appears, his first reaction is often not to consider what it might add to the family’s journey, but to calculate the tax that might eventually become payable if it succeeds.
There is nothing unusual about wanting to pay less tax. I built a business around helping people reduce their tax legally, so I would be a little hypocritical if I suddenly suggested tax did not matter. What concerns me is the point at which the numbers stop informing the decision and begin making it. In my mate’s case, the possibility of tax becomes a reason to delay an opportunity that might take his family another step towards the life they have spent years trying to create.
The figures may show that an investment could generate additional income. They may also show that some of that income will be lost to tax, that more capital will be placed at risk and that the expected return is not guaranteed. All of those things deserve consideration. What the figures cannot decide is whether the opportunity is worthy of the family’s dream, because a spreadsheet has never met the family and has no idea what the dream might be.
That is the difficulty with numbers. They can appear wonderfully certain, particularly when the rest of the decision feels uncomfortable. Put enough formulas into a spreadsheet, add a few decimal places and perhaps finish the presentation with an impressive chart, and an assumption begins to look suspiciously like a fact. The spreadsheet may be beautifully constructed, but it still knows only what we told it.
The modern business world places enormous faith in numbers, statistics, forecasts and economic predictions. Every morning seems to bring another expert explaining why business confidence is falling, why consumer spending is weakening, why interest rates will move, why employment will change or why some particular industry is heading towards either disaster or untold riches. The same figures can often be used to support completely different conclusions, which may explain why the old expression about lies, damned lies and statistics has survived so well.
Much of this commentary is not necessarily dishonest. Economists, journalists and analysts are usually working with the information available to them, and some of their conclusions may prove useful. However, the media business also relies upon attention, and impending disaster tends to hold attention longer than a careful explanation of gradual improvement. Doom and gloom can sell advertising space rather more effectively than a headline announcing that most people quietly went to work and did what they were supposed to do.
The problem begins when the business owner allows those numbers to become a substitute for judgement. A national statistic may be accurate while having almost no relevance to a particular business. Consumer confidence may be falling while a local supplier is experiencing its strongest year. An industry may be growing while one poorly managed business within it is running out of cash, just as an industry may be struggling while a disciplined operator continues to strengthen its position.
The numbers deserve to be heard, but they do not deserve the final vote. They can tell us where the business has been, what has happened to margins, whether customers are paying, how much cash is available and what assumptions must be true for a proposal to work. They can expose a story that the owner would rather continue believing. They cannot decide whether the owner wants the life that may accompany the result.
A spreadsheet might demonstrate that the business can afford another employee. It can calculate wages, superannuation, workers compensation, payroll tax, equipment, additional sales and the point at which the employee should begin contributing to profit. What it cannot measure properly is whether the owner wants the responsibility of another person, whether the existing team can absorb the change or whether the owner is prepared for the conversations that employment eventually requires. Affordability is not the same as willingness.
The figures may support expansion into another location. They may indicate sufficient demand, reasonable rent, an acceptable return and enough working capital to survive the early months. They cannot determine whether the owner wants to manage two locations, spend more time travelling, accept greater debt or surrender the flexibility that made the business attractive in the first place. The numbers may approve the transaction while the owner quietly moves further away from the life the transaction was supposed to support.
I have spent more than forty years working with numbers. I have turned them into tax returns and financial statements, but the more useful part of the job has usually been understanding what sits behind them. Numbers record behaviour, decisions, timing, confidence, fear, neglect and occasionally a little creative optimism. They report what happened, but they do not feel the consequences.
That is why compliance matters, although perhaps not in the way it is usually presented. Accurate records, timely reconciliations and properly prepared accounts are not merely paperwork created to keep the government satisfied. They give the owner a clearer view of the road already travelled and a better chance of recognising where the business may be heading. I may once have promised to drag clients kicking and screaming to compliance, but the better outcome was always for them to understand why the discipline mattered and choose to take themselves there.
Compliance strengthens the information. Advice helps interpret it. Judgement decides what to do with it. When those three become confused, the owner can find themselves either ignoring clear warnings or surrendering important decisions to someone who does not carry the consequences.
I have seen businesses become slaves to figures in both directions. Some owners wear rose-coloured glasses and interpret every number as confirmation that success is inevitable. Others see danger in every tax liability, investment, wage increase or temporary reduction in cash and therefore refuse to move at all. Optimism and fear may appear to be opposites, but both can distort the numbers when the owner has already decided what they want the figures to say.
The rose-coloured version assumes turnover will become profit, new customers will always pay, additional employees will immediately increase capacity and expansion will somehow cure weaknesses that have never been addressed. The darker version assumes every cost is dangerous, every tax liability is evidence that something has gone wrong and every uncertain result is a reason to remain still. Neither interpretation is created by the figures themselves. The figures have simply been recruited to defend the owner’s preferred conclusion.
Perhaps the better question is not whether the numbers support the decision. Perhaps it is what the numbers are asking us to understand before we make it. That difference may sound small, but it returns responsibility to the person who owns the business rather than allowing the spreadsheet to impersonate the owner.
A genuine “silent” partner would not look at a set of figures and simply announce what should happen next. They might ask what the numbers reveal about the journey so far, which assumptions have been tested and which remain matters of hope. They might also ask what the proposed decision is meant to achieve, what responsibilities will accompany it and whether the owner would still want the outcome if the financial return took longer than expected. The purpose of those questions is not to obstruct the decision, but to strengthen the judgement behind it.
This is where advice should arrive before compliance rather than twenty days after the meaningful choices have disappeared. An accountant brought into the discussion after the contract has been signed may be able to calculate the tax, explain the reporting obligations and prepare the paperwork. They may no longer be able to alter the structure, reduce the risk or help the owner examine whether the transaction belonged within the larger journey. Advice sought early can shape a decision, while advice sought late often does little more than describe what has already happened.
The same distinction applies to tax. A tax liability is not automatically evidence of poor planning, because tax is often the consequence of making money. There may be legitimate strategies available to reduce or defer the amount, and those opportunities should be examined carefully and early. However, refusing to create income merely because some of it will be taxed is a little like refusing to win a race because the trophy cabinet may need dusting.
That does not mean every opportunity should be pursued. My mate may examine the next proposal and decide that the additional risk, work or complexity is not worth the return. That may be an entirely sensible decision, provided it has been made because the opportunity does not fit the family’s direction rather than because the possibility of tax has overshadowed everything the opportunity might achieve. The difference rests not in the spreadsheet, but in the honesty of the question being asked.
The Discipline of Boring remains important here. Reliable numbers come from invoices being issued, debts being collected, bank accounts being reconciled, margins being reviewed and records being maintained when there are more exciting things to do. Without those ordinary disciplines, the owner is not making a decision from numbers at all. They are making it from estimates, memories and the occasional heroic assumption.
CANEI, Constant and Never-Ending Improvement, also has a role, although it does not require the business to reinvent itself whenever a new opportunity appears. The numbers can help the owner review what is working, identify where standards have slipped and measure whether a small change has produced the intended result. They support research and review. They do not provide the dream, the appetite or the reason to continue.
That distinction sits beneath much of what I explored in What the Accountant Saw. The accounts rarely contain the entire story, but they often reveal where the story being told no longer agrees with the evidence. The accountant’s task is not merely to point to the discrepancy. It is to translate what the figures may be saying and help the owner decide whether the explanation still deserves to be believed.
I sometimes wonder how we reached a position where numbers are treated as both unquestionable truth and convenient decoration. We demand data to prove every opinion, then select the data that best supports the opinion we already hold. Logic and entrepreneurialism are not mutually exclusive, but they can be odd bedfellows. The entrepreneur may need enough courage to move before every uncertainty has disappeared, while logic should remain close enough to prevent courage from becoming recklessness.
There is nothing wrong with instinct. Many worthwhile businesses began because someone sensed an opportunity before the figures could fully support it. The danger comes when instinct refuses to be tested, just as another danger appears when analysis becomes so dominant that no decision can survive it. Good judgement may require both the courage to begin and the discipline to keep checking whether the original belief remains worthy of confidence.
The numbers are therefore another member of the team. They may be the quiet employee who records what happened, challenges an assumption and occasionally points out that the owner’s favourite story has developed a rather large hole in it. They deserve proper attention, accurate interpretation and a place in every serious decision. They should never be mistaken for the owner.
The final decision belongs to the person who carries the risk, accepts the responsibility and lives with the result. The numbers can show whether the road appears affordable, whether the assumptions are reasonable and what may happen if the journey goes wrong. They cannot decide whether the destination is worth reaching. That leaves one question that no spreadsheet can answer on our behalf: what are we in business for?
Author
