Running your business without financial feedback is like driving on the freeway wearing a blindfold. This comparison may be a little extreme, but one of the most common problems I encounter in small businesses is not using financial tools. By this I mean that the business owner either does not have current accurate financial statements or, if they do, they are not using the information to run their business.

In fact, most of clients who come to me with a business that is losing money are also not keeping or using their financial feedback. Considering most small businesses are not started or run by financial managers, but by roofers, physical therapists, chefs and artists, this problem is understandable. That does not make it OK. I can not tell you how many times I ask a new client for their profit and loss statement and get a rather sheepish look. It is the same look I give my dental hygienist when she brings up flossing.

So here is the upside of learning to use financial statements: Many of the clients I see who learn to read and use current accurate financial statements become profitable very quickly. Why? It is just like the last time you took your eyes of the road and wound up driving on the shoulder. Then looking back to the road, you correct without even thinking about it. If you are a builder or a restaurant owner, I can understand why you pay more attention to blueprints or menus, but if you want to have enough to pay yourself at the end of the month, learn to use your financial statements.

I’ll give you my easy method in next week’s blog.

A dog trainer once told me that the perfectly trained dog is one that is always looking to you for permission to do the next thing, whatever that is. You want the dog’s eyes on you, waiting for your next command. The way you get a dog to act this way is to always discourage initiative on the part of the dog. If they are going to run out the door as soon as you open it, slam the door in their face. They will quickly learn to look to you for permission to go out the door.

Some managers do a similar thing when working with employees. Whenever the employee takes any initiative, the manager responds with a criticism or correction or a question, “Why did you do that…” The employee quickly learns that they need to check with the manager before they do anything. The manager may feel more in control but can’t figure out why they are so stressed and working so hard. This management style is one that is focused on control instead of employee empowerment. The manager needs to feel involved in every decision. While this may be gratifying to the manager, it makes for weak organizations. The manager’s efforts are divided by the number of employees and the growth of the organization is limited by that fact.

If the manager, instead, supports the employee by complementing the initiative and embracing ideas that are not the manager’s own, the employee will develop the confidence to act independently and think for themselves. Obviously, this only works in an environment where the employee has clear boundaries to their authority and responsibility. But the goal here is an organization made up of employees who know and do their job without needing to check in to the manager for every decision. The employee knows when they need their manager’s input. In this kind of organization, the manager’s efforts are multiplied by the number of employees instead of being divided by it.

Best of all, employees in this kind of environment enjoy their work more and have much better job satisfaction. No one likes to be treated like a dog.

I have found that most managers from small businesses need coaching on how to become more effective, and that often the basics of the “craft” of management seem to be lacking. Many small business persons get into business not to be a professional manager, but they become managers by default because they build houses, or have a professional practice, or want to make money from their cooking skills. Nothing in any of those professions prepares small business owners to be effective managers. Many believe that effective leadership and management means “I am the boss and I tell you what to do.” End of discussion.

I always start with the basics of employee feedback, clear job descriptions, reviews, etc. These are foundations of the relationship with any employee and not just something that big companies do. How can an employee do their job if you have not told them what their job is and suggested to them on how to do their job better?

A couple of years ago, I discovered a fabulous resource for any manager in any size company. It is called Manager Tools and is a comprehensive body of recorded discussions on everything from how to give employee feedback to how to shake hands. It is distributed in the form of a weekly podcast and can be found for free either through their web site at Manager-Tools.com or through the Business section of the podcast directory of iTunes. (For those who have not yet discovered “podcasts”, or are technically phobic, do not be intimidated. A podcast is just like a radio broadcast that you can access through your computer. Just load iTunes for free over the internet, go to the Podcast Directory, search for Manager Tools and subscribe.) The basic subscription is free and like much of the internet today, there are enhanced services for a nominal fee, but the free weekly podcast is fantastic by itself.

The two business consultants who produce this information work mostly with large corporations and so for small businesses, some of the podcasts are not relevant. But for the most part, the information is useful to anyone in business. I am a giant supporter of this resource, have suggested it to most of my clients and would recommend it to any small business person.

Imagine someone trying to teach a non-swimmer to swim by throwing them in the deep end of a pool and walking away. Then upon returning sometime later, finding that struggling student is not doing a perfect crawl across the pool, yelling at the student.

While this seems ludicrous, it is a pretty good parallel to how many otherwise smart business people treat employees. When a client tells me that they have a problem employee and I start to explore the situation, I usually find that there is no job description, no training, no consistent feedback on good or bad performance.

Most successful small businesses start with a core of people who learn quickly, adapt to new situations and are willing and able to take on new undefined responsibilities. But these people are relatively rare. It is a mistake to assume that a business can continue to grow by continuing to find this kind of employee. Later employees need a more structured situation with a better defined set of responsibilities. It is the manager’s job to make sure the employees knows what their jobs are and how to do them, and to give them regular feedback along the way.

It is possible to build a small business using sink or swim management, but the owner will be frustrated with a high turnover looking for the rare employees who learn to swim before they drown.