Rules of Thumb in Business

Compiled by Peter/CXO Wiz4biz 3/10

Most Small Business Owners & Entrepreneurs find themselves overwhelmed with duties ranging from Janitor to Chief Executive Officer (CEO). With so many duties to perform, small business owners do not have the time to study reams of Financial Reports in order to effectively manage their business. What I have learned through the years is that I can manage a lot more efficiently and effectively if I manage by the typical“Rules of Thumb” for business.

Wikipedia defines Rule of Thumb as “a principle with broad application that is not intended to be strictly accurate or reliable for every situation. It is an easily learned & easily applied procedure for approximately calculating or re-calling some value, or for making decisions.”

Why? So why would it make sense to manage by a method that “is not intended to be strictly accurate or reliable for every situation”? Well, because it is easily learned, easy to remember and easy to apply. Having certain financial “rules of thumb” can help you “Identify Problems in very quickly and show you where you need to focus your attention. Then, you can “drill down” into the financial reports to find where the problem lies & which issues need to be addressed

One of the major benefits of using a really good Accountant is the enormous amount of information they can give you. This is why I always tried to hire the very best. There was a time when, each month, my director of finance would hand me 150-200 pages of numbers in very neat rows & columns. At first, I spent a lot of time studying these numbers so I could manage better. However, I quickly realized that as good as she was, and what she was giving me, even as valuable as it was, I was totally overwhelming and there was information I needed that was missing. For example, how do these numbers compare to the Budget & Business plan we created prior to the first of the year?

So, we got together and created a two to three page “Key Factors Report” that took key numbers from the standard reports, converted them to ratios and “rules of thumb”, and then compared them to the budget, month-to-date and year-to-date.

(this Financial Report + 14 more Rules of Thumb continued in Premium Content)