Fear of the Numbers
At NH Business Consulting, we talk about cashflow a lot. How much is coming in, how often, how much is left at the end of the month after expenses, salaries, debt, taxes have been taken into consideration. We like to discuss cash positions on a monthly, quarterly, and yearly basis. Cash, or what bankers call liquidity, is king.
The catch, however, is that a large proportion of clients do not enjoy this discussion. In fact, they absolutely hate it. Rare is the small business owner that is on top of his financial position let alone his cashflow. The owner knows sales numbers and what should be paid. But when it comes down to operational margins, debt and tax repayment and cash flow availability then avoidance sets in. Without overgeneralizing, many small business owners do not understand the purpose behind financial statements and how they work together. The Generally Accepted Accounting Principles (GAAP) call for, amongst many other things, 4 basic statements: a net income statement, a balance sheet, a cashflow statement and a net equity analysis. Each serves a purpose and without looking at all four of them jointly you are missing some crucial information about the health of your company.
When requested from an entrepreneur, we typically receive an income statement and a balance sheet prepared by the company’s accountant. Often, the income statement is the sole document provided. For many owners they only see them yearly or sometimes semi-annually. Conversations diving deeply into what lies behind these statements are challenging for many. It is human nature to want to avoid what we do not enjoy or what we don’t understand. Plus analyzing statements may show the company is losing money. Avoidance is high in those situations. Business owners do not wish to see proof on paper that their gut feeling was right all along. At NH Business Consulting we call this phenomenon the fear of numbers.
As NH Business Consulting focuses on your profitability and wealth generation, we will help you to get comfortable with your financial statements. Understanding and utilizing financial reporting tools are key to a successful game plan. We can show you how to learn this valuable skill. Reach out to us.