I’m often asked by business owners to help them improve some aspect of their operation. In order to get a sense of the current state of things, one of the first questions I ask is, “How is your business doing (overall)?”
Regardless of their answer, I always have the same follow up question: “How do you know?”
The second question is always more revealing than the first and much of the time I hear some version of: “We’re able to pay our bills every month (and have some cash left over).”
What does that reveal?
It explains how a business owner evaluates the health of their business. And, while cash flow is very important and worth attention, it isn’t the ultimate litmus test for performance.
In fact, it’s not really fair to suggest there is an ultimate litmus test for business performance! If it were easy to boil it down to a single number, then it would be easy for business owners to point to such a metric.
Where can we find answers?
Instead of one single metric, we need to look to the financial statements of the company for the whole story. The reason why this isn’t often done is that it takes financial literacy to translate the story … and more importantly, understand how to shape its future.
As a result, most people focus on one metric (like cash flow) because they get overwhelmed trying to make sense of their books and figuring out where to start.
The good news!
Brio Business Academy is working with Jeff George, founder of TAO Financial, to create a new course specifically designed to empower business owners to understand and use their financial statements for something other than taxes or taking up space.
While there isn’t a simple answer, the good news is twofold …it isn’t rocket science and HELP IS ON THE WAY!