Financial Management

By the numbers . . .

Dave Kinnear1-On Leadership

I spent about two-and-a-half days in a weekend training session with my colleagues this month. The topic was Understanding Company Financial Statements. The training was excellent, as is usual with Vistage, and it was well worth my time. To make things even better, we “saved the company.”

The training revolved around a fictitious company with six divisions and, coincidentally, there were six groups of Vistage Business Advisors to act as Tiger Teams to come up with a plan for each division in order to “make the bank comfortable with a plan to get better and be an ongoing, thriving concern.” I’m happy to say, after poring over the financial statements, comparing our company to the industry, arguing about best approaches, scrounging for cash to get back in covenant, agonizing over a realistic plan and explaining to “the bank” how it will be executed, the bank was willing to leave our loan in place and work with us to keep the company solvent and to also return to profitability.

Along the way, I learned a great deal more about how to understand the company financial statements beyond simply knowing what was on them. I learned a good deal about how to analyze what was presented and make some decisions about what might need to change in the company to make things a bit more positive for the creditors.

The wonderful thing about our Advisor community is that we create a safe place to be vulnerable. There were many of us who admitted to needing a refresher on the financial statement basics. There were no questions too basic to ask. There was no laughter at someone, only laughter with others who were all in the same boat and willing to help each other learn.

The other discovery I made was how many of our Vistage Member Companies have the same lack of knowledge concerning the company financials. In my own group I have had the horror of working with a new member who was totally surprised at the terrible condition the company was in with regard to its financial position and the bank covenants. The company will be saved, but it will be with new owners now. There should never be surprises like that.

So I left with a renewed sense of urgency in making sure the Executives I advise are paying attention to the numbers. It’s not that hard. We can be a family or relationship oriented business and still pay close attention to the financial statements. We can question our CPA and/or controller/accountant to be sure we know what is going on. We can run our companies by the numbers and still be compassionate and care about our employees as though they were family. They aren’t mutually exclusive; yet many business owners treat financials as though they were some dark art that only their CPAs know about.

What I re-learned in this training (it’s been longer than I care to admit since I earned my MBA) is that we have no choice now but to knuckle down and get control of the numbers. We no longer have the opportunity to paper over our sins with more revenue. So we had better tighten up the ship and make ourselves comfortable with the Balance Sheet, Income Statement and Cash Flow statements. Having a balance in the checking account is NOT, by itself, indicative of a healthy company. And when things turn around, will you make the mistake of growing yourself out of business? That happens when you don’t understand cash flow.

What’s your honest opinion of your own expertise when it comes to understanding your company financials? Whether the owner, a hired Executive or someone serving in the “C-Suite,” you need to be more than just casually interested in the financials. Even if you have a staff of financial people in your employ, you need to know enough to ask penetrating questions. Otherwise, you will be completely at someone else’s mercy. The public company CEOs know they can no longer be so sanguine. Sarbanes-Oxley has made it abundantly clear, as CEO, you own the financial statements. The CEO/Owner/President owning the financials is also best practice for Private companies.