A client called me with their ideas for a new product line along with the statement, “We are going to sell widgets to all the widget providers and we aren’t going to focus on the direct sale anymore.”
Every business owner must know their numbers.
I know, I know… you hate to look at the numbers, it’s boring. But really, is that an excuse not to look? How can you make effective, informed decisions without knowing your numbers? Can you answer the following questions without too many manual calculations? Is this information easily accessible on demand?
These are just a few questions that every business owner should know as well as they know their own name. You may be asking yourself where would I find these numbers? There are four core reports that you should be requiring your CFO to review with you every month.
These four reports are:
- Income Statement (also called a Profit and Loss Statement)
- Balance Sheet
- Statement of Cash Flows
- Cash Basis Cash Flow Forecast (I like to call this one an Operating Cash Flow Forecast)
These four reports will provide you with valuable information to guide you in making sound financial business decisions for your company. If you don’t know how to read these reports or how to determine what is a good statement or a bad statement, do not feel that you can’t ask! Remember that CFO’s and Accountants spend many, many years in school and in the field learning how to create and interpret these reports.
Don’t expect because you are a business owner that you should automatically know how to read the reports. As a business owner it is your responsibility to understand these reports and how you and your employees actions affect the financial health of your company.
It is also your responsibility as a business owner to find the right people for your team that complement your strengths. Hire experts that are good at the things you are not and complement you. Many of these experts are also available on a part-time or as needed basis. What is hiring your compliment? That’s another post for another day!