Archive for March 30th, 2010

You know you can’t ignore the financial statements, but you probably need some guidance in reading and making sense of them.

If you are like most business owners and those in management, you know your “widget” or your core product or service like no one (or few) else.  You also know that the financial reports you run or have prepared for you are very important.  But do you know what exactly they are saying and showing?  Maybe you have a few key numbers that you hone in on.  Are they the right ones for you to be focusing on?

Chances are you are like most business owners, executives and managers that know little about the financial reports that you receive.  We consistently meet owners and execs that are embarrassed to admit that they do not fully understand these reports.  They clearly understand their sales and maybe their operational reports and have the misconception that just because they own or run a business or department that they should now know and understand their financial reports, I guess by osmosis!

Don’t Beat Yourself Up!

Us CPA’s and other financial professionals have been formally trained, have continued our education and have years of experience analyzing and studying financial statements from all kinds of companies in all kinds of industries.  I  certainly don’t know your core business like you do.  My core business just happens to be the stuff that mystifies and is so confusing to you!

Please, don’t be like 90+% of business owners and execs who feel inferior or worse yet, pretend that they do fully understand their reports. There’s valuable information in those reports, you just need help interpreting. Financial statements and other reports and data are important because they can help to both uncover problems and identify corrective action.

It’s in the past…

The core financial statements are historical reports, meaning that the information has already happened.  They are the balance sheet, the profit and loss (income) statement, and the cash-flow statement. The balance sheet is simply a list of the assets and liabilities of the business. The difference between the two is the equity or net worth of the business. The balance sheet answers the questions, “What do we have and what do we owe?” while the P&L answers, “How did we do?” and the cash-flow statement answers, “Where was the cash used?”

And now for the future…

Understanding your financial reports is crucial, but probably even more important from a management perspective is what’s going to happen in the future. Developing both a strategic and reasonable forecast for profit and cash-flow is essential and makes the historical data more meaningful and valuable. With a “living and breathing” forecasting system in place, you’ll be able to figure out what worked, what went wrong and how to correct any problems to maximize your financial performance.

Cash is King!

We all know this saying. Especially now, in today’s new economy, cash is the one item to focus on in your business.  Credit ranges from non-existent to extremely limited. Credit lines, even fully secured ones are being pulled or at best are being reduced to the current outstanding balance.  Remember the old Smith Barney commercial, “We Earn It!”? That is exactly how expansion, new products, R&D and other new and expanding needs are being financed; through internal funding from operations.

Profitability is of course the first focus when analyzing your business or department, but cash profitability and the cash flow statement analysis is more critical now that at most any other point in time in the post-WWII business era. Do you know how to determine your cash needs for the current, short and long term periods or are you like so many who are simply hoping and praying that your A/R comes in so you can pay next week’s payroll or next month’s expenses?

How can I plan and forecast when I can’t predict the future?

Worrying about cash is exhausting, all encompassing and takes your focus away from what you do and know best, your core business. The future, even in the near term, is uncertain.  Some so-called experts say the economy is starting to turn around.  Others say we are years away. And I’m saying to forecast your financial future?  Absolutely!

One thing I can tell you about any forecast that you do (even one where you use ASPIRE partners’ help) is that it is going to be wrong! Predicting the future, exactly what a forecast is, is an art that is based in science. We can help prepare you a reasonable and reasonably accurate forecast but of course it won’t be perfect. Going through the exercise and documenting your goals, also what a forecast is, is the valuable asset that you will receive.

The power of forecasting (aka goal setting)…

A Harvard Business School study found that 83% of the population do not have any clearly defined goals.  14% have goals but not written down.  3% of the population have goals that are written down. The study concluded that the 3 percent that did have written goals were earning an astounding 10 times that of the 83 percent group.  In addition, similar studies have shown that individuals with written goals also tend to have better health and happier marriages than those without goals.

Pretty powerful stuff!  The same holds true for companies that have an established forecasting or budgeting process in place.  If the actual results are compared with the forecast and studied, now we are truly leveraging our information and data to maximize our financial performance, an in turn improving the lives of ownership, management and staff as we are now creating a growing and financially stable company.

Get started for free!

There are lots of free and inexpensive resources available. A good webpage for beginning the journey through financial management is the SEC’s page on Beginning Financial Management Guide.  SCORE’s website is another great resource for basic information.  We have FREE tools and templates and also some inexpensive interactive and customizable ones at www.ASPIREpartner.com.

We are also providing a FREE webinar series and also some live seminars in the Tampa Bay area to help businesses with a variety of issues including this topic of Demystifying Your Financials, Social Media and Implementing in Your Business and 5 Proven Methods to Improve Morale and Profitability.  Visit TeamGearShift.com for more information.