- How much should you have in cash reserves? In standard
Looking at the numbers before me I realized that this business owner obviously never used his financials to make decisions. In short form…they were a mess.
Don’t get me wrong. He had a very successful business which he grew by his gut feel. You know– it’s the entrepreneurial intuition that makes many non-business people succeed at being business owners.
In most cases, these entrepreneurs judge their business’ performance based on their sales and bank balances. If both are going up, the business is doing “fine.” The more savvy ones have a few other KPIs (Key Performance Indicators) that they measure, but more often than not, those KPIs aren’t coming out of their financial system.
So why bother?
When it comes to your financials, it’s a credibility thing.
If that owner looked at a buyer and just said “Trust me. Despite my financials being a mess, I’ve got a great business here.” How far do you think that would take him?
Not very far at all. In fact, the buyer will probably laugh his way out the door.
But aside from needing good numbers to sell, there is also some entrepreneurial “street cred” by being able to discuss financial topics, such as your margins, with fluency.
If you are looking for an investor or want to convince a bank to lend to you, and, of course if you are looking to sell your business, those folks are assessing you as much as they are your business. If you don’t have clean numbers you are at a disadvantage.
Financials are the language of business, and if you aren’t comfortable speaking that language, or feel that your revenue performance speaks for itself, you are doing yourself a disservice and losing credibility when it comes time for critical discussions.
If you struggle with not having clean numbers, or want to improve your financial and entrepreneurial “street cred” give us a call.