I recently read a great article on Ignite Living about the importance of keeping detailed records. The author was consulting for a successful restaurant whose owner wanted to make it even more successful. The owner was strongly considering cutting banquets, which she associated with large amounts of food and work, plus hiring extra temporary staff for the occasion.
However, once the consultant had her create stats for her business, she discovered that the banquets were bringing in a lot more profit than anything else in the restaurant. She knew they had brought in money, she just hadn’t realized what a high percentage of it was pure profit.
The “moral”? Hunches aren’t everything. Check the stats before making a major business or personal financial decision. The situation may be quite different than it feels.
How Individuals Can Use This
The biggest takeaway from this story for individuals working on their finances is to keep track not just of what was spent but how it was spent. If you’re trying to cut costs, for instance, you’ll get much farther if you track exactly where the money is being spent rather than assume.
Despite paying decent attention to what I spend and attention to my budget, I still find myself coming to inaccurate conclusions if I don’t have the numbers right in front of me. There’s only so much budgeting a person can do in her head. I’ll misremember spending much less on gas, say, and much more on eating out. I sometimes even get too depressed to fill in the budget because I predict we spent more than we actually did.
It’s immensely helpful to have detailed stats of your purchases if you’re planning to make some major cutbacks. I don’t keep as detailed records now as I did during Where’s My Money Going? Month because we’re inside our budget. But during that month, I kept track of a lot more than just the category things were in. Had we needed to, I could have used that information to make cuts based on an accurate financial picture, not just what it felt like we were spending the most on.
How Freelancers and Small Business Owners Can Use This
For freelance owners or small business owners, it means keeping more than a ledger. When I’m recording transactions in my [download#4#nohits], I include details about the specific transaction. This means that I can see that in the last 4 months:
- 50% of the clients were new and 50% were recurring from the previous trimester(s) (I found it fascinating that it came out even!)
- About 60% of the work was moving people’s sites.
- Only 8% was setting up new blogs.
- Over 50% of hourly consulting was done for people who’d hired me to set up their blog or move them to WordPress in the first place.
While I was aware of some of this, the article inspired me to go into greater depth with the numbers I already had. I think I’m going to go back and start tracking these stats from the beginning to see what kind of pattern emerges. Because I’ve got the records, it’ll be pretty easy–but even if I didn’t I think it would be worthwhile to create the records during some downtime.
Backing Up Our Hunches
Hunches aren’t bad. They’re often great sources of inspiration in small business and freelancing. They’re useful in everyday life. They’re just not enough to make major decisions without first consulting the facts.