There are so many things that affect a business. Some directly impact the day to day operations, like customer service, production or selling. These are the activities that drive the business and all are critical for success. However, from a consultant’s and lender’s point of view, nothing gives more confidence and assurance than the financial statements.
Financial statements tell a tale and the numbers and categories are the illustrations. When I look at cost of goods I hear so many stories. They can tell me that the company is doing a great job at controlling costs. They also might be giving you a tip that someone is “borrowing items” from inventory. A year over year revenue increase might shout that the sales and customer service team is doing a great job. A sales decline might whisper with dread that new competition has entered the market. If the accounts payable cycle increases, your storybook might be warning you that an underlying cash flow problem might be occurring. Of course the picture might also indicate that the payables department has gotten more favorable terms and are simply hanging on to cash a little longer. Aging receivables might be waving their arms and screaming "BE CAREFUL! YOUR CUSTOMER MIGHT BE HAVING CASH FLOW PROBLEMS AND YOU ARE GOING TO GET STIFFED!" They are the possibilities that make the plot interesting and understanding essential.
One of the first things I ask a business owner is “what do the financials look like?” When that owner confidently explains them to me and can answer my questions, I gain so much confidence in them and their ability to manage. When financials are a mess, that company is usually not functioning as well as it could.
Understand your financials. They tell the best stories ever.... My review is "A ripping good yarn. 5 out 5 dollar signs."
Mike Schrader
Financial statements tell a tale and the numbers and categories are the illustrations. When I look at cost of goods I hear so many stories. They can tell me that the company is doing a great job at controlling costs. They also might be giving you a tip that someone is “borrowing items” from inventory. A year over year revenue increase might shout that the sales and customer service team is doing a great job. A sales decline might whisper with dread that new competition has entered the market. If the accounts payable cycle increases, your storybook might be warning you that an underlying cash flow problem might be occurring. Of course the picture might also indicate that the payables department has gotten more favorable terms and are simply hanging on to cash a little longer. Aging receivables might be waving their arms and screaming "BE CAREFUL! YOUR CUSTOMER MIGHT BE HAVING CASH FLOW PROBLEMS AND YOU ARE GOING TO GET STIFFED!" They are the possibilities that make the plot interesting and understanding essential.
One of the first things I ask a business owner is “what do the financials look like?” When that owner confidently explains them to me and can answer my questions, I gain so much confidence in them and their ability to manage. When financials are a mess, that company is usually not functioning as well as it could.
Understand your financials. They tell the best stories ever.... My review is "A ripping good yarn. 5 out 5 dollar signs."
Mike Schrader
RSS Feed
