The Financials – Friend or Foe?
Daily at the SBDC (Small Business Development Center) we have the privilege of working with entrepreneurs from a broad range of industries. Although the industries may vary, many of the challenges entrepreneurs face are common, no matter what the industry. One such challenge we often see relates to numbers and financial statements. When it comes to the financials, entrepreneurs are usually not on the fence; they either like numbers or wish to avoid them. Having worked with many entrepreneurs who are in the avoidance mode, I usually find they are quite capable of comprehending financial information, but haven’t had the data explained in a way they can understand. As I write this article, a recent client comes to mind.
The client and I were reviewing financial statements, provided by his accountant, which he planned to present to a lender. Rather than seeing the financials as a friend, he saw them as his foe – required by the bank. The business owner failed to see the gold mine of information the financials contained and how it could be utilized. The entrepreneur was also taking a risk; if the banker asked questions about the financials, could he respond? As we reviewed the data, I was enthused. The client had done a fine job of managing his business. The financial statements provided a nice picture of the business, but the client didn’t realize this. As we interpreted the data and discussed its value, the client became more engaged. By the end of our meeting, the entrepreneur had a different view of numbers and the financials – they had become his friend, not foe. Mission accomplished!
If you bear resemblance to the above entrepreneur, that’s o.k. If a bookkeeper, accountant or CPA prepares your financial statements, that’s fine, too. However, if you aren’t comfortable with numbers and financial information, your business is at a disadvantage. As a business owner, a basic knowledge of numbers and the ability to read and understand financial statements is essential.
You may want to consider asking someone to walk you through your financial statements. The income statement, balance sheet and cash flow statement provide a picture of your company’s financial strengths and weaknesses. The three statements work together and one statement alone is not enough; it’s important to understand how they are connected.
Financial statements tell the financial story of your business and are a reflection of previous decisions you, or others in your company, have made about the business. Information such as what you have invested in the business and taken out, and what you have spent on expenses, as well as other decisions involving numbers, are all revealed in the financials. The balance sheet, cash flow and income statements reveal trends. Having the ability to interpret the information contained in your financials and seeing how the business is trending will enable you to make informed business decisions and chart your course.
Getting comfortable with numbers and the financials of your business can be a game changer – an advantage over the competition. Getting to the place where you grasp and use the gold mine of information your financials can provide, is a good place to be. Let the financials become your friend, not foe, and don’t be shy about asking for help. At the Georgia SBDC Network, we like numbers and helping small business owners interpret and utilize financial information to their advantage. If we can assist, contact your local SBDC office.
(Source: Susan Caldwell, Area Director at UGA SBDC in Augusta)