How Much Is Not Knowing Costing You?
I’ve gotten pretty comfortable saying something over the years.
“I don’t know.”
That might sound strange coming from a CPA. People usually come to us expecting answers.
But there’s a difference between not knowing something and needing to know it.
And figuring out that difference can save a business a lot of time and money.
I’ve gotten pretty comfortable saying something over the years.
“I don’t know.”
That might sound strange coming from a CPA. People usually come to us expecting answers.
But there’s a difference between not knowing something and needing to know it.
And figuring out that difference can save a business a lot of time and money.
Not Every Question Is Worth Answering
Think about a decision you’re trying to make.
Should we hire someone?
Should we buy the equipment?
Should we raise prices?
Each question can send you looking for more information. And once you start looking, it’s easy to keep going.
One more report. One more calculation. One more assumption to test.
Eventually, you have to ask:
Would another answer actually change the decision?
Because information has a cost too.
I Learned This Making Donuts
Years ago, I helped build the financial model for a new pastry business.
We started with a simple question:
How much does it cost to make a donut?
Turns out, that question gets complicated pretty quickly.
We knew ingredient costs. We could estimate labor. But we didn’t know exactly how much we’d sell, how much product we’d waste, or how efficient production would become.
We could’ve kept digging.
But eventually, more detail wasn’t going to make the decision for us.
So we made assumptions. We focused on the unknowns that could determine whether the business worked or didn’t.
Then we opened the doors and got something much more useful.
Actual results.
Some assumptions held. Others didn’t.
So we adjusted.
Would the Answer Change What You Do?
This is the question I keep coming back to.
If we knew the answer, would we make a different decision?
Say you’re considering hiring someone.
You know the salary. You know how busy the team is. You have a reasonable idea of the capacity that person would add.
What you don’t know is exactly how much additional revenue that hire will produce next year.
Does that matter?
If the hire only makes sense if revenue grows 30%, then yes. You’d better understand where that 30% is coming from.
But if you can comfortably support the hire without that growth, debating whether revenue will increase 8% or 11% probably isn’t where your time belongs.
An unknown deserves more attention when being wrong could change the decision.
We Spend Too Much Time on the Wrong Numbers
I’ve watched businesses spend hours tracking down a small difference in an expense account while a much larger decision rests on an assumption nobody has challenged.
We’ll fight over a few hundred dollars because we can see it on a report.
Meanwhile, we’ll assume a new service will be profitable without knowing how many hours it actually takes to deliver.
Those two questions don’t deserve equal attention.
Before asking for another report, get specific about the decision.
Then ask:
- What do we know?
- What are we assuming?
- Where could we be materially wrong?
- What happens if we are?
- Would better information change what we decide?
Sometimes the answer is yes. Get better information.
Sometimes you already know enough.
You Won’t Get Every Assumption Right
Good analysis doesn’t guarantee a good outcome.
I wish it did.
You can ask good questions, make reasonable assumptions, and still find out later that something didn’t happen the way you expected.
We saw that with the pastry business.
The useful part wasn’t getting every assumption right the first time.
It was knowing which ones we needed to watch.
That gave us a way to learn, adjust, and make the next decision with better information than we had before.
What Don’t You Know?
Take one decision you’re working through right now.
List what you know.
Then list what you don’t.
Don’t try to solve the whole second list.
Look for the unknown that could change your answer.
That’s the one worth your time.
You’ll rarely have every piece of information you want before making a business decision.
The better question is whether you understand enough of what matters to make the call.
If there’s a decision in your business where you’re not sure what you really need to know, let’s talk it through.