Does trying to understand your financials give you brain damage??
Ninety-nine percent of the time, the financial statements given to me by prospective clients give me a headache. If these financial statements give me a headache, they are probably causing you brain damage.
For the life of me, I cannot understand how most of the financial data provided by prospective clients for my review is either helpful or informative. In the movie Amadeus, the Emperor had just heard one of Mozart's operas. His comment? “Too many notes!” When I look at some of the financials presented by my prospective clients, I think they are playing the wrong notes or, they can’t read the music.
The financial statements (Profit & Loss and Balance Sheet) should tell you how profitable the services and products you are selling are. They should also tell you if your equity is growing. Do they?
Most of the financials I see are prepared for the benefit of the CPA. They make it easy to prepare your annual taxes for the IRS. Great! They tell you nothing about how your business is performing. In addition, you don’t know how to read them (because you’ve never been taught how). This does not mean that I should fit you with your own green eyeshade and stick you in a dark back office with piles and piles of paper. On the contrary, less is more – you should review a lesser amount of information and spend less time personally gathering it.
At a glance of your financials, can you tell if you are making money? Can you tell what is out of whack? Are your services profitable enough? Are you making money on retail? What is the biggest drain on your cash flow and how can you fix it? At what level do your sales tip from loss to breakeven to profit?
Your financial statements should be the blinking light that signals you as to where you are where you are supposed to be. Red light – stop and change. Green light – you’re doing great and should keep going. Your financials should alert you to where you need to focus your attention. Your budget should be updated to show the changes you are making and when.
This is what you should glean from your financial statements and financial team. You are not your financial team, but you need one. You should have a CFO (for strategy and budget) a Controller (for cost and cash control) and a bookkeeper to keep your financial data organized and up to date. AND, you do not need to employ or contract any of these people on anything close to a full-time basis.
Your financial tools should work together. Your POS/EMR program, strategic plan, budget, and bookkeeping program should work in sync. The information should be similar but used in different ways. Your involvement in the preparation of this information must be minimal, but your analysis, decisions and action should be consistent and focused. You cannot do this if your information is not clear and you are seeing it in real time.
I can’t tell you how many times I have requested information from someone’s accountant or bookkeeper, only to wait three months until they have it together. Why? They have a broken system, and they are trying to gather way too much information that is of no use to you. Also, tax time isn’t until March of next year, and the CPA may have other things to do.
Stop the madness and stop overthinking your financials. Clarify, simplify, get only the information you need and let’s start making some money.