The numbers actually DON’T tell the story of your business…

Image by Michal Jarmoluk from Pixabay

...they tell the BACK-story.

Authors create characters for their stories, spending a lot of time pondering over those characters’ backstories—the who they are and the why they behave the way they do. The how they got to where they are.

The backstories give insights into what actions and behaviors their characters need to take (and that are believable) to grow the stories in the direction of the author's vision. The better the backstories, the more believable the characters are to the eyes of the readers (customers). To the cast of characters who collaborate to bring stories to life (employees).

Our Financials, Balance Sheets in particular, are the backstories of our businesses. As the owner of your business, you're the author of its story.

It's only several chapters in.

The better you understand your backstory, the better you can influence the quality of the interactions of your cast of characters—the employees, vendors, clients, strategic partners—necessary to grow your business into your vision.

Narrators that contribute to your backstory include your bookkeeper and accountant. Your Income Statement (IS) and your Balance Sheet (BS). That’s “managerial-type-accounting. The quality of our understanding of what they are telling us governs the quality of assumptions we need to create strategies for how to move our stories forward.

For the next month. Next quarter. Next year.

The better we understand when to separate or blend, what to focus on or ignore from our managerial accounting, the better we become at utilizing “Leadership Accounting.”

Leadership Accounting uses the Balance Sheet to focus on the important numbers of our total business health as the first step to making important decisions.

Starting here avoids getting lost in the total noise of our financials. To understand trends not just events. To avoid being penny-wise and pound-foolish.

Well-informed decisions are made from understanding how the current state (Income Statement) fits into the whole story (the Balance Sheet), not by reacting to what you read in the latest chapter.

When making decisions based on the IS alone, we may unnecessarily cut costs (save ourselves out-of-business). Conversely, we may also be too overconfident and add unwise costs (over-invest into distress).

You may take on suboptimal customers or product lines because you think you need the revenue NOW! You may add incorrectly to your bench, thinking we need a warm body, NOW!

Other missteps appear when we slow the growth/scaling of the business (opportunity cost) or promoting your products (under-marketing) your products because you think you need to conserve your cash (under-invest into distress).

By understanding the backstory in the Balance Sheet, we can develop priorities and time-frames for our decisions. We truly understand our business within a context of time that promotes proper restraint. Appropriate pace. Patience first and reaction second.

When making decisions from the Income Statement first, we may overly-focus on the current state of making money (profit or loss). We’re likely prone to reaction first and patience second.

This is Leadership Accounting. Understanding the big picture from our Balance Sheet and using it to best understand what actions our cast of characters should be taking to make our stories believable. 

Author your best story through incredible Leadership Accounting. If you were in command your backstory, you will have truly created the business you envisioned.

That is when you, the author, can tell the story of your business.