A Framework Guaranteed to Improve Your Decision-Making

Nearly every decision we make is based on the belief in our ability to predict the future, but unfortunately, the future is not all that predictable.

As an entrepreneur, decision-making is your life.  You need to either be really good at predicting the future or better at making decisions, so you don’t have to.

This is one of many compelling points made in Chip and Dan Heath’s book, “Decisive: How to make better choices in life and work.”

The book explains that people, in general, are pretty terrible decision-makers. We seek information to confirm our pre-conceived biases; we overestimate our predictive capabilities, and we involve too much emotion in our decisions – ultimately resulting in a lot of bad decisions.

The book is rich with ways to take emotion and bias out of decision making so you can make better decisions, and one particular decision-making framework that stood out to me doesn’t rely at all on our ability to predict the future.

The framework is called, “Bookend the future.”

A simple definition is to observe a decision and take into account the downside of that decision and the upside. You can imagine this with brackets:

Downside [——————————————————————————–] Upside

Then you plot the current state of the situation on the graph, so you know if the potential downside outweighs the potential upside.

For instance, if you are drowning in tasks and considering hiring an hourly-wage administrative assistant, you may consider the downsides to being the cost of hiring an employee and the additional time it will take to train this employee.

If the administrative assistant thrives in the role after a brief training period, this will allow you to spend your time on revenue creation; this would be an upside for your business.

Plotting this scenario would be a low downside and a high upside and would look something like this.

Downside [———– X ————————————————————]

If something has low potential downside and high potential upside, it’s worth moving forward on it, just based on the logic. You are no longer predicting the future; you are taking a calculated risk.  Calculated risks are what business owners and entrepreneurs are comfortable doing.

This is the decision-making method investor Byron Penstock – a student of Warren Buffett and successful investor – uses for making investments.

Here’s how Penstock describes his strategy: “It’s my job as an investor to think about the future, but the future is uncertain, so my investments can’t hinge on knowing the future. I look for situations where the bookends suggest that I can invest wisely without knowing exactly what the future holds.”

He calls this, “low IQ investing.”

 

The Upside Versus the Downside of Virtual Accounting

Let’s take this bracketing method of decision making and apply it to what Kahuna Accounting does for entrepreneurs.

In talking to entrepreneurs every day about their financials I see patterns in their thought process and decision-making. Usually, the thought-process just before making a transition to something like outsourcing their accounting involves a gut-check at making this commitment to letting the pros take over.

If you’ve never experienced having someone do your bookkeeping and accounting for you – you don’t really know what it would look like when it is implemented. So here we are again. We have to make a decision and we can’t predict the future.

How would an investor make this decision?

Consider the downside. The downside is making a financial commitment, but since Kahuna Accounting has no long term contracts and no commitment fee, there is not a big financial risk. Then there is the downside of wasting time transitioning and not having it work out, but we do a majority of the work, so you’re not risking much time.

The upside, however, is taking an area of confusion and chaos in your business and turning it into an area of clarity. It’s finally having the tools to understand where your business is financially. It’s being proactive instead of reactive and looking forward instead of backward.

If you’re serious about growing your business and find accounting in any way painful, there is a rather high upside and hardly any downside. Probably like this.

Downside [———– X ————————————————————] Upside

Understand that staying where you are is a decision also. Let’s bracket the upside and downside of not changing anything.

What’s the upside of continuing with a confused system that has no professionals involved?

The upside is pretty minimal. You save a bit of money (even though realistically you probably don’t because of time wasted and missing transactions).

However, the downside is significant. You waste time. You increase stress. You are at risk for compliance. You lack insight into your business and where it’s going.

So the upside/downside of maintaining status quo is more like:

Downside [———————————————————————–X–] Upside

By staying in a broken bookkeeping system, you have very limited upside and relatively high downside. Kahuna Accounting provides a proven solution for entrepreneurs and small business owners, providing consistency every month and generating reports that enable you to predict your financial future accurately.  We are constantly evolving and refining our model to create even higher upside and even lower downside for our clients.

If your bookkeeping is causing you stress, consider outsourcing to Kahuna Accounting.  After a conversation with a member of our team, we are confident the upside will be significant. Schedule time with our team by filling out this form.