Tuesday, 25 September 2012

Financial statements others can understand

In too many cases, business financials are so confusing that no one can understand them or analyze them.  And it’s not uncommon that the year-end statements don’t match up with the internal profit and loss statements.  These can become major problems when the business owner tries to obtain financing or sell his or her company.

Far too often business owners take a hands off approach to their financial statements.  Despite the request of their Accountant they dismiss the idea of reviewing those results with their advisor and, more importantly don’t ask how to improve the results.

Those owners who take an active role with their business financials, often:

Find ways to save money.  Ever go to the grocery store and quickly pick up a few things, get to the register and wonder how you just spent $100 or $200.  Then consider those times you carefully looked at what was on sale, compared no name brands, or carried coupons.  It seems ridiculous but you find you spend 25% less and end up with the same amount of goods.  The same principle needs to be applied to your expenses. Business owners who regularly review expense accounts quickly discover there are areas they are carelessly spending.

See threats and weaknesses sooner.  Picture how productive you would be if you could do just a little more strategic thinking, speak directly to a few more key customers or develop future marketing initiatives. Business owners who use their financial statements as a tool are better able to identify threats and weaknesses.  They are not bandaging symptoms but rather correcting the causes.  

Improve the marketability of their business.  If sellers don’t understand their financials how can they expect buyers to get them?  Since finding a willing buyer will require the business financials to be analyzed in detail, the fewer obstacles placed in front of buyers the better.  The more difficult it is to determine a business opportunities financial picture, the more often buyers will continue their search and never give your business a fair shake.

It is absolutely critical that a business has a set of financial statements and internal bookkeeping that are easy to understand and make sense to anyone who has to review them.

Do you have a small business question you would like answered about this article or others?
Bill Sivell is a salesperson with VR Windsor Inc. [www.vrwindsor.com] 519-903-7807, which sells businesses to buyers across Canada and around the world. His 14-year career includes diverse senior management positions in marketing, advertising, sales management and operations management. His blog appears every Tuesday.


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