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Have a question about a small business topic? Let our resident expert Chris Griffiths take a run at it. E-mail your questions to Confidentiality ensured.

'How's business?' is a typical question that arises when someone knows you're a small business owner. The question is innocent enough, but the entrepreneur's answer is often disingenuous or down-right wrong.

Now, depending on the circumstance, you can understand why a business owner might exaggerate or be deliberately deceitful. But how can she be wrong? How can she be incapable of answering a simple question about their own business correctly?

Let's start with the disingenuous part of the equation. There are typically two camps of business owners who don't answer the question candidly: those who claim business is going great and those who claim business is failing miserably.

The ones who answer with enthusiastic positivity – all the time – are both eternal optimists and liars. They want to put on brave faces and can't stand the thought of negativity being associated with their business. They want their brands to eternally represent optimism. Any admission of weakness, or tough times – no matter how real and inevitable they can be – damages their brand by creating a negative spin on the reputation of the business and owner themselves. So when you ask them, business is always looking up.

Then there are the pessimists. When you ask this group how their business is going, it's always tough; sales are stale, expenses are through the roof, staff is restless and it's impossible to make money. While most businesses have experienced times like this, it's rarely an everlasting condition. Usually things get better or they get worse and the doors close.

But for some owners, playing down their business's success accomplishes a few things: One, it elicits pity and concern, two feelings upon which some individuals in our population thrive. Second, in the mind of the owner, a negative impression will discourage neighbours, employees or friends from setting up shop as rivals. The worse things appear to be, the less likely it is a competitor will come into the fold.

Regardless of whether you're an optimist or a pessimist in the 'how's business?' scenario, I can understand where you're coming from. By playing a side, you're trying to get your answer to work for you. The group that worries me the most, however, are the ones who can't answer question honestly – even if they wanted to.

These small business owners are the most dangerous because they often pose as an optimist or a pessimist, but truth be known, have no idea how their business is doing. They might know their cash position, or whether they're generally busy or slow. They might know the key customer fires that are burning and the hot buttons for employees. But they don't know really how their business is doing.

I want to see owners treating their business as a separate, living, breathing entity from themselves. In so doing, I expect them to know the pulse of their business. I expect them to know their business's weight, height and blood pressure. I want to see them measuring the things they are responsible for managing. I want them to benchmark, even if all they are comparing their business' to is last year's results or this year's budget.

I know the heights and weights of my children relative to their age groups. It's a measurement of health. In the same way, you should know your margins, inventory levels, key customer sales to forecast, fixed expenses, bill of materials, cash flow, and more. It tells of the health of your business.

So the next time someone asks you: "How's business?" you can answer any way that suits you and your business. Just be sure that you're in the position to know the true answer. It's your business. Ignorance is not bliss and there's no point in lying to yourself.

Chris Griffiths is the Toronto-based director of fine tune consulting, a boutique management consulting practice. Over the past 20 years, he has started or acquired and exited seven businesses.

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