It’s kind of a silly question. Of course, your business should have monthly, or at least quarterly, financials, but not everyone does. Half of all businesses under $10 million in annual sales don’t have a head of Finance or Controller. Many struggle with producing information on an annual basis to their tax professional. Some businesses are just too small and don’t have the money or the time. Others are forced to downsize and need to make very tough choices. Whatever the reason, it’s not good enough to risk the future of the business.
The short answer as to why you need current financials is; a better night’s sleep. The long answer is too long for this blog. Here are a few things you gain by having current financials:
Adhere to your bank’s loan covenants
Better cash planning and financial decisions
Cleaner Accounts Receivable
Better understanding of Inventory
Product trends and product profitability
Expense trends and analysis
Ability to drive the business towards hitting goals
Builds confidence with the outside; BoD, Banks, Auditors, Customers, etc.
Communication tool with your team
Increased value of your business
Now back to the affordability of having current financials. It doesn’t have to be cost prohibitive. Look towards folks in the outsourced field of bookkeeping and CFO services. Pay for what you need. It’s a great way to keep your costs down and get quality folks with a ton of experience.
If you are thinking about producing your financials on a regular basis, come up with a format that is beneficial to you. Many people just use the documents created by their auditors or tax professional, but that doesn’t give them the information in a digestible way. Start with the following; Balance Sheet, Income Statement, Expense Statement, Cash Flow Statement, and trends for all these. Create an annual budget and regularly produce variance reports of budget to actual, period to period. Try to have people in your business explain the variances. It’s a great way to have meaningful discussions with your team. Once you have this set up and producing timely information, DIG DEEPER! There’s plenty of information to help your business grow and increase profits. The amount of time producing the information should be minimal.
PS. Don’t forget to Know Your Numbers in all the other areas of your business.