Decision makers / management of small to mid-sized businesses (SMB) do not realize they are “flying blind” when it comes to grasping their company’s complete financial profile.
It took me years of working with management teams of multiple companies, in a variety of accounting, financial, and capital transaction capacities to recognize that these leaders were not being provided with their business’s full spectrum of financial fundamentals.
SMB management usually comprehends their operations via their P&Ls and related reports; but they are rarely provided, and therefore rarely comprehend, the other primary financial fundamentals that are key to effectively running and maintaining a business…such as…cash flow and financial health…as well as long term capital elements of shareholder values and borrowing capacity.
Comprehending complete financial fundamentals is needed throughout a company’s life and its ever-changing and dynamic business stages; such as…survival mode or growing or contemplating an exit.
Rhetorical Question
Rhetorical question for management of SMBs…"Do you feel there is a void when it comes to being provided complete and comprehensible financial fundamentals?"
It is my experience that the answer to this rhetorical question is almost always – “Yes”.
The P&L and Operations are NOT the Entire Financial Story
As stated above, management usually does a great job of comprehending their income statements. This is important as the P&L reflects the core operations of the business. However, financial elements of the business, which do not pertain to the P&L, are not effectively reported, and therefore, are not effectively articulated to management.
These important, non-P&L, financial elements which are either under-reported or non-reported to the decision makers, are:
Cash flow
Financial health (re, liquidity)
Business value
Borrowing capacity
Under-reported or non-reported financial elements results in these items not being understood.
Warning – businesses increase their odds of experiencing an undesirable outcome(s) when they do not comprehend and track their complete financial situation.
Trender® and the 5 Elements® of Financial Fundamentals
For the first time, a business’s complete financial fundamentals are defined, calculated, summarized, graded and discussed for the benefit of the decision makers. This functional and effective information is efficiently produced from the business’ existing reports of their internal balance sheets and P&Ls. When applicable, recent line of credit borrowing base reports are used in liquidity calculations.
Companies do not need to create new or additional reports.
The 5 Elements of financial fundamentals provided by the Trenders are as follows:
Cash flow (proprietary to Trenders)
Financial health (re, liquidity) (proprietary to Trenders)
Shareholder values
Borrowing capacity
Operating earnings - summarized trends / drivers
The Trender package includes the following sections:
Financial Report Card™ (each of the 5 Elements receives an objective "traffic light" grade; Green Light, Yellow Light, Red Light…1 page).
Summary of the 5 Elements with brief comments of highlights (2 pages) - graphs show "What Happened"; brief verbiage tells "Why it Happened".
Supporting condensed graphs, financial statements and capital-component calculations...with up to three years of activities.
Note: more specifics can then be gleaned by drilling down into the SMB's existing financial reports and accounting records.
Management has the choice to look at all & / or some of these specific items which they determine are necessary for their needs.
The beauty of the 5 Elements, as reflected in the Trenders, is their brevity and their capturing of and conveying of the full spectrum of financial fundamentals.
A mantra the Trenders use is "Only a few numbers in a few minutes™" to describe the simplicity and effectiveness of the 5 Elements.
The Trenders do not replace existing, effective reports. They are in addition to them and enhance their overall effectiveness.
Companies need these financial insights regardless of their current or prospective business stage. This is because financial fundamentals are just that – fundamental.
Succinct and understandable financial fundamentals are a must-have for SMB leadership.
Management needs and deserves functional financial reporting that shows whether their capital and time have been well spent and which provides insights for making more informed and confident business decisions.
Correctly combining the 5 Elements into monthly succinct, digestible reports, along with supporting schedules and graphs of their current status, drivers and trends provides decision makers with the financial insights they need and deserve.
Know more about your business by knowing its financial fundamentals.