Should You Always Follow Your Instincts in Business?

Instinct vs Data Analysis in Business

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Should you always follow your instincts in business?

No…and yes. As every economist would say, it depends. Henry Ford once said “If I’d ask customers what they want, they would have told me ‘A faster horse!’”. Steve Jobs never relied on market research either. “Our job is to read things that aren’t yet on the page” he said once. The list goes on and on of famous business people pushing the envelope and trusting their instincts more than data analysis or market research. But does this mean that you shouldn’t read or trust what Financial Statements (either past or forecasted) are telling you? I believe not.

Data analysis, be that financial or commercial data, should either reinforce your instinct or make you change course altogether. This is why it is so important to have accurate information about your company delivered at the fastest time possible. In the accounting and finance field, I’ve seen too many small business people loosen up on the date when they should receive financial statements. I’ve seen some that have even given up on receiving them altogether and just go about their business by “winging it”. Neither of these options are ways to run a company.

What Do I Need To Receive Accurate Financial Statements On Time?

Let’s just say that you’ve caught the bait. Data analysis should be performed either to reinforce or to change your instincts. But how much time do you actually need to give your accounting department to deliver accurate financial information? Any Small to Medium Business should be able to produce accurate financial statements by the 4th of each month. All you need are two things: 1) a series of procedures laid out throughout the month to make sure of this (as I set out on my article Accuracy vs Speed in Financial Reporting); and 2) an ERP (Enterprese Resource Planning) or proper software to register your transactions as they occur (if you want to learn how to choose the right ERP for your small business, you can download my free ebook directly from Amazon).

Other people will tell you that you need more time, and of course, if something needs to be corrected, you can loosen up a day or two. However, the danger lies in loosening up every single month. If Financial Statements are delivered late after two or three months in a row, then something is wrong with the process and you need to demand more organization from your accounting department. I’ve always considered financial and commercial information as a decaying asset. Information that is not delivered on time is less valuable to you when making decisions than information that was delivered on time.

But What If The Data Is Not Enough?

Let’s face it. You will never have all the data you need to make decisions in your business. What’s expected of you as a business owner is to make the best possible decision under the data shown to you and sometimes this means going with your gut. However, not analyzing data to know if the decision you took two or three months ago was right or wrong is a mistake. Unless you compare your hypothesis about the market with real, registered data from time to time, you won’t be able to tell if you took the right decision or not.

So, what can you do? Well, all you can do is demand the following:

1. Information must be registered and delivered on time; and
2. Information must be accurate & reliable. If there is anything worse than making decisions without any information it would be to make decisions based on the wrong data.

Action Plan

My suggestion to you would be the following.

1. Request information, be that financial or commercial information, on any decision you made recently that was mostly based on your instincts. It could be to know if that new machinery is reducing costs or producing more units; it could be to know if that extra car has increased sales; or it could be if that new branch is producing enough profits/cash to sustain itself. Whatever decision you took based on gut feeling or forecasted data, back it up and see how it is performing;
2. Make adjustments and suggestions to that data so that it is presented to you in the way that you want to see it; and
3. Express how often do you want to see that information. It could be weekly, bi-weekly, monthly, etc. etc. etc. Don’t review your instincts just one time. Do it periodically to be sure you are on the right track.

Giancarlo Jiménez, founder of The Finance Course is a Finance Professional with more than 11 years of experience in the field and more than 4 years of experience teaching about Corporate Finance in a Business School. The Finance Course will have a FREE Course available on the 2nd week of August 2018 showing you how to interpret Financial Statements & Ratios to make decisions at your small business. You can Sign Up To The Free Course by visiting this page.