"Throw money into the furnace of a business" or problems associated with the control of the business by its owners

In the last article on Habré, I tried to directly present the required format of digitized information necessary for controlling a business.
Not understood…
On the eve of my first seminar on the topic “How to control the business without getting into details”, I decided to describe in more detail the background to the conclusions made in the last article. And in the format of unsuccessful story, using examples from personal experience.

The size of the business does not matter, as well as the industry, manufacturability, etc. If you are the founder and / or owner of the business, you must control it, and this can be a sentence. And if you do not control, you will lose it.

Personal experience.

In 1997, I organized my first startup in the form of a small auto service for installing additional equipment. Now I clearly remember that I wanted to be rich and free. In any case, the development and growth was that after the organization of one enterprise, it was possible to proceed to the organization of another, receiving passive income from the previous one. I risked and worked from morning till night so that I would not work later .
But I became the owner, and it became my sentence. The next five years since the organization of this service center, I worked 12 hours 7 days a week. On vacation did not even dream. In the hunt (favorite entertainment) for 5 years has never been. Everything was justified by the attempt to present the situation as “work is life, life is work, and I get pleasure from life”.
Such incredible efforts have led to good growth. I became rich and free to choose what to do at any moment. Since I went into every detail every day and managed everything myself, everything was fine.
It was good until the business grew, and I was no longer enough for everything. I lost control because the principle approach was personal participation and direct management . This again became a sentence. For a while I grabbed at the weak points. There was a feeling that one picked up, the other falls. Went to study on the MBA (this was the biggest mistake). As a result, I lost several hundred thousand dollars and a large part of the business over the year.
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Then again hard labor to restore their condition.

Another example.

Once, three friends decided to open a taxi. They had their own profitable business. Taxis they considered as a simple tool for making money. Those. they considered these investments solely in the interests of passive income justifying the initial investments and risks.
They threw off 6 million rubles and bought 20 new Volga.
Then they laid the Volga in the bank, received a loan of 5 million and bought another 15 cars. Laid them too ...
In total, turned 100 cars in the amount of 30 million, of which 24 were loans.
I do not take into account the cost of service and the park and so on. For simplicity.
We hired management and launched a business.
During the year, the management paid them 600 thousand rubles of informal dividends each month.
Thus, they believed that the payback period of the project was 120% per annum, and even boasted to everyone and cited this case as an example of excellent investments.
After a year, they stopped paying, and my friends had to figure out what was the matter.
It turned out that 100 cars were in a deplorable state, and could only be estimated at 30% of the initial cost.
those. they have 10 million cars left
The loan to the bank was repaid by one third (the loan was three years old).
Total loan left 16 million
Given that for the year they received 7.2 million in cash. They did not just pay off, but lost 4.8 million rubles.
Those. six were originally invested, and then they sow almost five. In other words, the actual return on invested capital is minus 80%.

Intermediate conclusions.

These and many other stories in practice made me seriously think about the causes of such problems. Why I could not control the business normally? Why was I so heavily loaded? Why not leave the business without a close daily attention to detail? The desire to find an answer to these questions predetermined the direction of my activity for many years to come.
In any case, the goal was set: To find ways, or even to create a system so that you can control the business without being immersed in details and direct management (initially only for yourself).
Where is the desired director's button, clicking on which immediately shows what is going on in your business at any time?
But the question turned out to be not in the button itself, but in the fact that one should still see and how to look at it.

Analogy

Imagine the situation that we decided to monitor what is happening outside the window. Nobody taught us this process, we will make it in a natural way.
Try it!
First you will see the big picture, not concentrating on the details. If something moves (changes, attracts attention), then you concentrate on it, peering at the details and analyzing them. Having understood, you again see the big picture.
This is a natural principle of control. He does not need to learn, he laid on an intuitive level. From the big picture to the details. We constantly monitor the overall picture and, if necessary, concentrate on the details.

Let's go back to business control. How do we do it?

In fact, we are constantly concentrating on the details and do not see the big picture.
Every day we are immersed in a huge amount of detailed information, and if the business is not large, then we have a chance to control, therefore, the big picture. And if the business has grown, then we lose understanding of what is happening.

And what is the general picture for business?

What do we control outside the window in our analogy? If nothing changes, then something is unlikely to attract our attention. Thus, we can conclude that we control the state and the changes that are taking place.
The state of the business. How is it expressed in numbers?
Since a business is created for the purpose of making a profit (making money), then its state must be expressed financially (financial condition), i.e. in monetary terms. What is estimated is that the business has on the one hand, and on the other, the sources of funds that were raised in order to acquire all that the business has. The first in accounting (initially, this is science, designed to digitize a business) is called Assets, the second is Liabilities (liabilities (liabilities, funds raised)). Naturally, the sum of what a business has is equal to the sum of the sources used to form this economy. In this way, the digital order, expressed financially (in monetary terms), represents the state of the enterprise (business) in the accounting department. Such a presentation is called a balance sheet.
But here is bad luck. Traditionally, the balance (report on the financial condition of the enterprise) is formed from time to time. Namely, only once at the end of the reporting period. In addition, it is usually difficult to detail his articles.
Thus, to constantly observe this picture will not work.

These are not all problems.

.
The balance sheet formed in the accounting department is subject to the principles laid down in the national accounting standards dictated by the state, whose interests can be determined how to collect taxes. These interests do not overlap with the interests of the direct owner, so the format and content of this balance does not fit. Many businesses today use international financial reporting standards that are developed in the interests of shareholders. In the modern world, dividends per share are so small that this factor ceases to matter. What matters is the valuation of shares, which is formed directly by supply and demand, and not by the real state of affairs in business. The purpose of the shareholders is to buy a share cheaper and sell it more expensive. It is unlikely that such goals can in fact normally overlap with the interests of the direct owners. So it turns out that even using IFRS standards, we do not get an adequate reflection of the financial condition of the owners. One can argue with the last statement, but think about what the shareholder does when there are visible problems at the enterprise? .. That's right, they sell. And what does the owner do? .. Rather trying to help solve problems. In this comparison lies the main behavioral difference and, accordingly, the difference of interests and requirements for information. A Swiss friend of mine recently said: "These shareholders need" beautiful "reports, and I want to see what is really going on in my business."
In fact, it is still worse. It turned out that 90% of Russian enterprises in general do not have the habit of forming financial reports (including balance sheets) for direct owners, even once in a period. The business owner is simply forced to be content with the information that various accounting systems form, not taking into account his interests.
Perhaps the owner, the direct owner of the business, he himself can not clearly articulate their requirements for information. Gives this job to the level of specialists in finance and accountants, and they were taught to generate information in the interests of other parties. But he directly pays for everything. It seems to be true, I think, remembering how I demanded one button, clicking on which will show everything that is happening in my business. And in fact, every day I got into all the small details and lost all attention from the general state of affairs. I thought I felt him. By the way, reliance on own chuiku peculiar to most owners.
The second point of control of the overall picture will be the total monetary value of all changes over time. We are talking about the monetary expression of the economic profit of the enterprise. This is the second mandatory financial report on income and expenses (profits). Probably, it is necessary to begin with constant online monitoring of real profits. So that every operation that takes place in a business instantly reflects on its size. And this is the main point. Many believe that the problem of ensuring this condition lies in the area of ​​the impossibility of registering all transactions online. It is not right! There are no big technological problems of online registration in the modern world. At least, with daily discreteness. I achieved such results without great difficulty. The problem begins at the moment of compiling two interrelated reports from these data. Balance sheet and income statement. Any change reflected in income and expenses also changes the financial condition. Thus, these two reports cannot be divided and considered separately from each other. And the problem turned out to be exactly at the moment of their interrelated receipt. This relationship ensures the maintenance of data reliability throughout the accounting system.

If you return to the variant of the natural principle of control, it turns out that you need to constantly see the total financial state in the form of a balance sheet and a report on income and expenses, as a report on changes in this state.
We have to look at the business, or rather, its digital reflection, just like what is happening outside the window. Before us should always be a general picture of the state (balance) and any changes in real-time (Report on income and expenses).

But that is not all.

At any moment I should be able to concentrate on any point in this overall picture. In other words, it should be possible to detail these reports, plunging into the details that interested us. The ability to compare these details, as well as to consider from different points of view. For example, there are different points of view on valuation (in real estate: market, investment, accounting), and they can all be adequate in different variants of analysis.

Some conclusions.

Analyzing my mistakes that led to such a sad default, after such great efforts on my part, I came to the following conclusions:
- It is necessary to reduce the amount of time spent on monitoring and control.
- To do this, you must initially concentrate on the overall picture of the state and results. If everything is normal, then do not touch it, let it work, and if there are problems, then understand it.
- The overall picture of the status and results is visible through the Balance sheet and SDT (income statement and expense report). In general terms, I need just such a form.
- It is necessary to get the accounting automation system in my business so that all the operations taking place are recorded in real time, and the system can easily give me daily reports of balance and SRA, with the possibility of any kind of detail. Detailing these reports is necessary in order to concentrate on the details in the right places, so the system should allow for easy detailing, without additional requests and participation of any performers.

Of course, there are other options that use successful owners.

A few examples:
It is possible to limit the growth of a business to a level where it is still possible to feel and understand the general condition through direct management of details.
You can arrange the key positions of "their" people.
You can try to filter out the most important and significant details and lock their control on yourself, for example, personally endorse all cash payments in excess of 100,000 rubles.

An interesting analogy comes to mind.

Imagine that you came to the stadium to watch a football match. In a natural way, you control the big picture, concentrating on interesting details only at the right moment. This is normal.
Now imagine that you are watching this match through a telescope. What will be the effectiveness of your control? And you try ...
Duck why then do we control the business looking into the disgraceful pipe ?!
In rare cases of well-placed accounting, we periodically break away from this pipe in order to see the general situation, which does not add much efficiency.

The question I asked myself:

There is a clear understanding of the form that I want to receive on a daily basis. I can arrange everything in such a way that all transactions in the account will be recorded in a timely manner, this is not such a difficult technical task. Those. I can provide an entry accounting system. There is a magnificent and very powerful calculator in the form of a personal computer that can handle millions of operations per second.
Duck why I, as a direct owner, do not have such a system, which would allow me to constantly control the overall picture, and only if necessary plunge into the details?

Lyrical access.

At the dawn of our business, my friends and I joked "Throwing money into the furnace of the business center" (The Joke appeared just after the story of a taxi). Today, I am amazed at how accurately this phrase reflects the problems of direct owners and direct investors who do not have the practical ability to control the general state and results of their business in real time. For some reason, they are defined as a number of managers and offer to use management accounting data in their own interests. In other words, they are forced to look constantly into the disgraceful pipe.
A poem from childhood comes to mind:

Englishman Mr. Hopp
Looks at a long telescope.
Sees mountains and forests
Clouds and skies.
But does not see anything
What is under his nose.
Suddenly he stumbled over a stone
Straight into the river plunged.

Although there is not quite an adequate analogy. Rather, in this example, the analogy is closer to the criticism of the immense enthusiasm for budgeting, while there is no normal ability to control the current fact (look down).

My next steps were to study existing systems.

. As a representative of a small business, high hopes were pinned on 1C, then fresh from the tin 8.0. I bought and began to introduce all of my functioning business units. Six months later, he dismissed all 1c-nicknames and rolled back the accounting system to the initial position before the introduction.
Maybe I just "do not know how to cook it."
Understanding the requirements for the generated information from the initial data very well, I began to finance improvements to the system I used according to my requirements.

That's how I “dived” in IT development.

Then began their own development, searches, experiments. And all this is for the sake of one goal: to find a way of online monitoring of the general condition and results with the ability to concentrate on the necessary details, detailing and comparing this information.
The path was long, and the task is not easy. Along the way, he studied all the basics of accounting and financial management, became a certified specialist in IFRS. In addition, it has grown strongly as an IT development manager in an extremely Agile format.

We need to finish this article somehow.

Today I achieved my goals. And these are no longer solutions for themselves, but real products that solve the existing problems of business owners. The problems associated with the control of their own business so that direct investment does not look like “throwing money into the furnace of business”.
In the near future, we will resume the company's blog on Habré and will describe in detail all the nuances of accounting automation in the interests of direct owners and direct investors.
The key position was described in the article that they did not understand. But the questions are not in the reporting itself, and not even in its form, but, as it turned out, in the technological capabilities of the accounting itself. These opportunities today are extremely poorly coordinated with new information technologies and the requirements of the business world.

ps Another small illustration:

the idea of ​​this illustration is to show a ripe moment for changing the digraphic paradigm in accounting, which is now fundamental to all computer accounting systems. (Probably with the exception of 1C Enterprise).

For those who read to the end it may be interesting to attend a free seminar on a relevant topic. Here is the link to the registration.