Financial Intelligence Takeaways – What Business Leaders Need to Know
One thing I’m passionate about is sharing financial intelligence with business owners. I do this regularly in client settings, but also often present seminars in more diverse group settings. I recently had the opportunity to share what business leaders need to know about financial intelligence to members of Blair Koch’s TAB (The Alternative Board). The members of this particular group held varying decision-making roles, with only a couple in positions that are directly responsible for a company’s financials.
If you’re curious as to why these leaders with widely varying roles would attend a Financial Intelligence seminar, the answer makes sense: each face the pressure of making decisions that impact the future of the company – often for years to come. They are savvy enough to realize that the best business decisions are based on solid data.
Relieving some of that stress and replacing it with the confidence that decisions are sound is why I offer these seminars, and it’s a driving force in my work in general.
Understanding the invaluable tools that lie within your financial statements to inform your decisions is foundational for your company’s growth. I share with seminar participants that they need to know these four things:
- Which financial documents are essential to decision-making
- How to read and interpret them
- Which information you need to extract
- How to apply that information to inform your decisions
The following summary highlights the essential documents you need to understand and how the information they provide can be of benefit:
- The Income Statement, or Profit & Loss Statement, provides a snapshot of business revenues, expenses, and net income or loss for a specific period of time – data that is essential to effective decision-making. It can help you:
- Assess profitability
- Identify revenue sources
- Better manage costs
- The Statement of Cash Flow is often considered the most essential financial document, and one that many companies don’t produce. It illustrates how cash moves through your business from operations to investing and financing and provides clarity around sources and uses of cash which is critical in decision-making.
- The Balance Sheet provides a snapshot of the state of a company’s finances at a particular point in time. The following are three areas in which the balance sheet can inform business decisions:
- Strategy and planning
- Determining risk
- Securing capital
- We also discussed the importance of having an annual budget, which I refer to as a Profit Plan. Better yet, a rolling, twelve-month Profit Plan reforecasts the next twelve months each quarter. This enables businesses to have the flexibility to incorporate changes as they occur, on top of an already solid and realistic one-year plan.
Here are some comments and takeaways shared by the business owners and leaders who attended this most recent seminar:
- There is immense value in understanding which key financials to look at to understand business performance and when adjustments need to be made.
- I appreciated the appropriately detailed overview of the main metrics associated with the financial performance and planning that goes with running a business.
- I learned that the statement of cash flow report is an important document that we need to use more.
- Thanks for explaining how the statement of cash flow, trailing 12-month reports, and days of inventory relate.
- Rick clearly illustrated the importance of creating a budget and evaluating it quarterly.
- I’m excited to understand and realize the importance of profit and loss statements and cash flow forecasting and how they can help make better decisions that can boost profit.
- I appreciate learning how to do a cash flow projection and how valuable it can be.
- Thank you, Rick, for offering each of us a complimentary hour with you to further discuss our financial concerns.
If you sometimes feel stressed by the responsibility of making those critical decisions that impact your company, get in touch with me for a complimentary consultation. I’d welcome the opportunity to help you assess not only your financials, but your understanding of how to use them to optimize your decision-making process. Please also get in touch if you’re interested in hosting a Financial Intelligence seminar for your peer group, clients, or staff.
