I believe that numbers tell stories, and this is why it is crucial to be able to ‘read’ financial statements.
I love numbers for their ability to tell precise stories. They convey the pure, undistilled truth about your business. They show whether you’re a fact or fiction. They scream of your business’ action or inertia.
I have ‘read’ a great many financial statements over the years. Some numbers have told glowing stories about a business’ progress and some have told the exact opposite.
So who are the authors of these stories?
It’s business owners like yourself, who have the most impact on and ultimately tell the company story. The accountant simply reports it.
Of course there are many things that business owners with successful companies do but I find that the following two attributes consistently surface amongst the best of the best:
- Great business story tellers have compelling reasons to grow their businesses.
Having a compelling reason behind business growth is hands down the single most important factor in an outstanding story.
The reasons can be almost anything but they are compelling to you. However, for your reasons to be compelling they will need to be specific, measurable, and associated with a timeline.
If you are not currently authoring a great company story it may be because you don’t have compelling reasons to do so. Finding these reasons will lead to a better company story.
- Great business story tellers have a financial reporting system composed of people and tools that deliver timely, accurate and meaningful information.
If your sales exceed $1 million per year and all you receive is an annual financial statement from your accountant six months after year end, you’re going to struggle. You’re so far behind the reality curve that by the time you understand the changes you need to make, you’ve already been left in the dust. You may be making decisions based on your understanding of changes taking place in your market, but these decisions are not supported by reliable, current numbers.
A detailed planning process should take place well in advance of year end. One of the outputs of the planning process should be an operating budget. There are many types of reports a company might utilise to run an effective business and these can differ quite significantly between businesses. At a minimum, a balance sheet, income statement, and cash flow statement should be produced by every enterprise, regardless of sales revenue. And if the management team is deep enough, a cash flow projection should also be included in the slate of reports together with Key Performance Indicators (KPIs).
These are some of the most important prerequisites for your business’ numbers to tell better stories year after year. Yes, there are more, but you will be surprised how far having compelling reasons and excellent financial reporting systems will take you.
What stories do your numbers tell about the state of your business? It will take both passion and tenacity, but my wish is that you will craft those stories into a best seller.
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Andrea Moody – Presenter for Pathways Australia