Warren Buffett Principles #5 “Charlie and I, both as owners and mangers, virtually ignore such consolidated numbers (consolidated earnings). However we will report to you the earnings of each major business we control, numbers we consider of great importance. These figures, along with other information we will supply about the individual business, should generally aid you in making judgments about them.”
In this piece of information Mr Buffett is conveying to us that all the numbers that accountants and bookkeepers make up, mean little, unless they are the actual earnings figure for any one of the major companies that are in his portfolio. He says that in the annual report the numbers given are the most important ones, rather than just a slew of numbers about every aspect of each business. Of course with so many businesses it is important to consolidate and combine or extract and simplify to manage the data.
In running a business, accurate accounting is vital to knowledge about where the business stands. But there are so many types of numbers that can get confusing or obscure the truth in the accounting figures. It is important to keep the numbers clear and correct. It is also key to make sure that the punctuation, namely the periods, is in the correct place.
An interesting concept surrounding the earnings discussed is the business environment that each business operates in. He says that it is best to be informed about the climate that business are functioning in. “Is the business enjoying an industry tailwind? Or is it facing a headwind?”. This shows concern for the overall industry and company. What is the environment that the business is functioning in. Running a business with the greatest amount of knowledge and information about the competitors, the new technology relevant to the industry, the new players in the game, the new concepts in business development and manufacturing, and new ways of functioning for businesses which may be “greener‘ socially and environmentally friendlier. This concept of business environment helps business owners to operate with a full complement of colors on their palette and avoid the ostrich head in the sand approach to managing a business.
The candor with which Mr. Buffett agrees to discuss the “happy “ and the “disappointing” business experiences is refreshing. This approach tends to put people at ease, since we do not feel that Berkshire Hathaway has anything to hide. In reporting earnings and business numbers, explanations of less common terms provides an ongoing glossary and a great aid in understanding the annual report. Shiny highly glossed report covers are beautiful, but the approach that Berkshire Hathaway has developed in their novella like format is unique and truly enjoyable to read. This approach makes for a more user friendly interface with an annual report.
Reporting and being highly conscience of earnings of each company is significant. Of course the nature of Berkshire Hathaway lends itself to such free style accounting and management practices. Each business that Berkshire Hathaway owns and operates comes with experienced management in place. Most if not all businesses that BH purchases, must retain management and functioning as part of the agreement to purchase. Thus other former owners or management are keenly aware of many of the “numbers” inherent in running a business.
There are many ways that we can learn from Berkshire Hathaway, but we must be careful to note the significant and unique nature of the holding company as a business model when comparing it to our own developing businesses. Discipline in all aspects of business functioning will keeps us on track.
Anne Barr
Anne Barr has over 26 years experience in sales and marketing, six years as a franchisee. She has assisted over 367 business owners and purchasers to achieve their goals in career change, transition and exit strategy. She holds the designation of Certified Franchise Executive from the International Franchise Association, Certified Business Intermediary from the International Business Brokers Association and Board Certified Broker from the Texas Association of Business Brokers. Anne is active in professional organizations,
networking groups and volunteers for non-profit entities. As owner/operator of four successful businesses, Anne has proven people skills and enjoys helping clients find the right "fit" in business
ownership. Visit www.FranchiseOpportunitySpecialist.com for more information about me and my company. - Visit Anne Barr's Website
Jay Kubassek
(Jay's Full Bio: EvanCarmichael.com/jaykubassek)In five years, Canadian-born entrepreneur Jay Kubassek went from selling mufflers at a Midas franchise to revolutionizing Internet marketing with the 2004 launch of CarbonCopyPRO, a online marketing education company, now worth over $20 million with customers in over 160 countries.
As an independent film producer, his upstart film fund Aliquot Films is currently producing a films with Spike Lee and Abel Fererra (starring Ethan Hawke and Dennis Hopper.)
Jay's entrepreneurial spirit is irrepressible. He’s the owner of five companies, a professional speaker and trainer, international real estate developer/investor, extreme sport enthusiast and emerging philanthropist.
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