Curious to know how your business is doing, financially? Look at your financial statements; here’s how.
You’re the owner of your business. You know how to sell; you know how to make your product; a you know how to find opportunities that will make your business grow.
But do you know how to determine if you’re doing well from a financial standpoint?
It’s Time to Be Honest With Yourself
Be honest. Do you really know how to look at your financial statements and determine if you are doing well? Do you really know what is most important when you look at those statements?
“What statements?” you may ask. The P&L (profit & loss statement), the balance sheet and the cash flow statement – those are the statements you need to look at each month. And they need to be prepared and given to you as soon as possible after the close of each month.
Now, I’m being a little facetious here, but it is not that unusual for me to speak with owners of businesses and get some interesting answers to questions like:
If you have heard this before, join the crowd. You are not alone. It’s not terribly unusual if you either don’t get routine, timely financial statements or if you don’t trust them. But you need to receive regular, reliable financial information each month that you can use to help you make decisions.
Think How Your Banker Thinks
And, while we’re on the topic, ask yourself another question: “If I don’t trust my own financial statements, what must my banker think about them?”
You may remember when bankers didn’t always insist on seeing your financial statements or waited until you gave them the annual statements. Well, those days are over. All good bankers expect quarterly statements, at a minimum, and many also want to see how you are doing on a monthly basis, as well.
They want to see the statements so that they can determine if there are any causes for concern. You can understand that. But you need to know what areas would give rise to such concerns long before your banker identifies them. The only way you can do that is to have reliable financial statements and to analyze them as your banker (or a CFO) would: What are the trends that offer opportunity, or are they cause for concern? How am I doing with respect to the covenants in the loan agreement? You need to be able to understand what is important to your banker and be able to explain how you are doing in concrete financial terms, using the statements as the basis for your conversation.
And You Need Even More Information
In addition to the basic financial statements, you also need to have a few reports that provide you with the important information you need. You know what’s critical to your business. It may be a little different for each company, but I’ll bet you want to know a few things every month:
You may have started your company knowing what you needed to know. But if you’ve grown — or if you’re struggling to make a profit or improve it — chances are that the information you’re getting is not really helping you now.
If you need help with getting this information, stop kidding yourself. As the owner, you are probably not the best-equipped person to create this information — and you certainly have better things to do as the owner than to create financial statements. You need to find someone who can help you determine what information you need and who knows how to get it; you need someone who has developed such information in the past. This is not a place to skimp.
So the question — “How’s my business doing?”— is simple to answer. But the answer can be quite difficult, because you need to understand what you don’t know — and to find a way to get that information.