Ominous clouds or sunshine; what do your numbers tell?
December 5, 2019
By Martha Sullivan, CPA, CVA/ABV, CM&AA, CEPA
Partner, Succession Planning Practice Leader
Martha leads HK’s succession and exit planning services division and is a regular contributor to Wisconsin’s InBusiness digital magazine.
Numbers can be a great black cloud for many entrepreneurs. Creativity, innovation, and vision of a better product, service, and world drives and inspires entrepreneurs each day, not numbers. If you have the spirit of an entrepreneur, you likely focus on creating and telling your story in the marketplace. Energy and that fire-in-the-belly feeling come when you’re chasing the sunshine of the sale. Numbers often slide to the back burner as a great mysterious and intimidating black cloud to you and your team. It’s a rare bird that puts their feet on the floor every morning and says, “Hey! Let’s go look at our numbers today. It’ll be fun!”
Sound familiar at all? Are you or do you work with one of these self-starting entrepreneurial types?
What’s curious to me is that the story of your innovation and creativity is often best told by your financial statements — assuming your accounting systems and data points are structured properly and well cared for. A simple financial statement shares tremendous insights into the paths taken, bumps navigated, and mountains conquered — when it rained, poured, or the sun shined through. Your financial statements provide a fountain of information from which you and your team can confirm you are on the right path, identify when you’re not, and set the stage for future success. By marrying your financial story to your entrepreneurial story, you get to choose to create value, income, wealth, and opportunity, or squander it.
It’s critical to have a sound financial system foundation and a track record of accurate and timely reporting prior to considering a transition to the next business owner. Without it, the viability of a transition may be completely at risk. Buyers’ financing and acquisition decisions depend on data. If this information is not readily available, your credibility may be compromised. The sooner you commit to excelling in this aspect of the business, the better.
Let’s take this one step further because not everyone is a business owner or, if you are, you may not be thinking about exiting any time soon. Being disciplined about your financial systems and reporting applies regardless of whether you are an owner or not.
In fact, ownership is irrelevant. If you make business decisions, recognize the importance of the story your financials tell you and other decision makers.
A team that operates without current, accurate financial information — or the ability to read and understand that information — flies by the seat of its pants. Too often, decisions are made from the gut rather than data. When a need arises for financing or an eventual sale of the business, the lack of current and accurate information casts shade on you immediately, sometimes to the point where your financing partner or buyer simply walks away leaving you empty handed.
Every owner, manager and supervisor in your company should know how to read financial statements. Corporate financial fluency matters and the more fluent your team is, the better. Armed with this competency, you and your team will be in a better position to see storms on the horizon, navigate them together, and seize the silver linings. You can grow the company, its value, and profits with more intention, creating the story ending you want.
It is truly transformational for a team to learn how to read its own financial statement story through properly structured and cared-for numbers. I recently witnessed this with a client that is developing its future leaders. A group of key non-financial managers — project managers and field leaders — attended a class together on how to read financial statements. It was so valuable that another group will go to the class soon, as well. It’s changing their conversations. They are looking at the business and its opportunities differently. The team is more engaged in the success of the business and its future, meaning everyone wins.
If you know of (or are) an entrepreneur or business leader who is hiding from the big mysterious black cloud of financial information, encourage them to do something about it. (If you are that entrepreneur, it’s time to talk to your accounting advisor.) Make having and understanding your financials a priority. Otherwise, you are missing out and creating undue risk in your business. Educate yourself and participate in your financial story, and you can write a happy ending.