We often undervalue accuracy. According to Webster’s on-line Dictionary, accuracy is, “freedom from mistake or error: the quality or state of being accurate: the ability to work or perform without making mistakes.” I realize that we are all human and will make mistakes if we are alive; however, depending on the magnitude of the error, it can cost us dearly.
Accuracy is especially vital in business as it relates to measuring the financial results of the company and interpreting the numbers correctly. This is why it is very important that business owners measure the results of their company on the accrual basis of accounting. Norm Brodsky, in a recent Inc. magazine article explains it well when he says, “To have an accurate picture of your business, you need to track sales and expenses on an accrual basis. That means recognizing sales when the sales are made, not when the cash is collected, and recognizing expenses when they are incurred, not when the bill for them is paid(Brodsky, p.80).” Only in this way can you determine your true profit margin.
The above quote by Brodsky is basic in tracking the numbers. Going even deeper, below is another example that demonstrates the value of accuracy.
I once met a new client who simply could not understand why he was continually short of cash, in spite of the fact his profit margins were good, and he collected his money from the customers in advance. His company was a custom manufacturer of a particular product. After I began working with him, we found the problem. His inventory numbers on the Balance Sheet were wrong. They were overstated which meant his expenses were understated. He was not making a sufficient margin on the sales of his product and in fact, had a net loss instead of a profit. Eventually, he had to increase his prices on his products to cover his fixed costs, and he began a monthly manual inventory analysis of his product until better controls were in place to ensure an accurate inventory number. His business was heading for disaster because the inventory numbers were inaccurate.
There are many other examples but here is the lesson. Make sure the numbers that you are tracking are accurate or it could cost you your company!
*Brodsky, Norm (2015,2016), Inc., Don’t Fear the Numbers