• Ed Patton

Flying Blind

Updated: Dec 30, 2021

Decision makers (DM) of small to mid-sized businesses (SMB) do not realize they are “flying blind” when it comes to grasping their company’s complete financial fundamentals.

It took me years of working with multiple SMB decision makers, in a variety of accounting and financial capacities, to recognize that they were not being provided with their business’s full spectrum of financial fundamentals.

SMB decision makers usually comprehend their P&Ls, but they do not 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 SMB decision makers…"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, decision makers usually do 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 the DMs.

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

Warningbusinesses increase their odds of experiencing an undesirable outcome(s) when they do not comprehend and track their complete financial situation.

Trenders® and the 5 Elements® of Financial Fundamentals

For the first time, a business’s complete financial fundamentals are defined, calculated, condensed, graded and discussed for the benefit of the decision makers. This effective information is efficiently produced from the SMB’s existing reports of their internal balance sheets and P&Ls. The SMBs do not need to create new or additional reports.

The 5 Elements of financial fundamentals provided by the Trenders are as follows:

  1. Operating earnings - summarized with trends

  2. Cash flow

  3. Financial health (re, liquidity)

  4. Shareholder values

  5. Borrowing capacity

The Trender package includes the following:

  • Financial Report Card™ (each of the 5 Elements receives an A – F grade…1 page)

  • Summary of the 5 Elements with brief comments of highlights (2 pages)

  • Supporting condensed graphs and financial statements with up to three years of activities (14 pages)

  • More specifics can then be gleaned by drilling down into the SMB's existing financial reports and accounting records.

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.

Companies need these financial insights regardless of their current or prospective business stage. This is because the financial fundamentals are just that – fundamental.

Decision makers, need and deserve, 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.

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