Are Your Numbers Lying to You?

Understanding your financial reports is important for many reasons. Yet even with all the resources available today, many owners don’t understand them to use them to the fullest. Look at financial reports as a type of report card giving you a snapshot of your business’s financial health, assess profitability, asset to debt ratio and ability to pay off debt.

Top Reasons to Understand Financials

• Budgeting and Forecasting – Financial reports help to create budgets and forecasts. They help you set realistic financial goals and track your progress.
• Cash Flow Management: Monitoring cash flow helps you ensure you have enough cash to cover expenses, pay debts, and seize opportunities. It’s vital for avoiding cash flow issues.
• Tax Planning: Accurate financial reports aid in tax planning and compliance. You can optimize deductions and credits, reducing your tax liability legally.
• Business Valuation: When it’s time to sell or transition the business, financial reports are crucial for determining its value.

Financial reports are critical for informed decision making and personal financial planning. They play a huge role in the confidence an owner has in their day-to-day operations and how much they can hand off to their team.

When Financials Lie

Or they don’t give us the entire picture. Financial reporting can paint a positive picture even when an owner is experiencing overload and burning themselves out. Here’s why…

• Owner’s Compensation: Owners often prioritize reinvesting in the business rather than taking a competitive salary. The business may look sound, while the owner’s personal financial situation suffers.
• Long-Term Effects: Burnout can impact the owner’s ability to make strategic decisions and innovate, which may not show up immediately in financial reports but can hurt the business’s long-term growth.
• Employee Turnover: High turnover due to a stressed and overworked owner can increase training and recruitment costs, affecting profitability over time.
• Customer Satisfaction: Burnout can lead to a decline in customer service and satisfaction, potentially causing increased customer attrition in the long run.
• Healthcare Costs: The physical and mental health costs associated with burnout may not be reflected in the business’s financials until they become severe.

To address this issue, it’s crucial for business owners to prioritize their well-being, strike a healthy flow between work and personal life, and seek support or coaching when necessary. Focusing solely on financial success can have hidden costs in terms of personal health and overall business sustainability.

Example: When comparing two businesses that are making the same profit but have different approaches to team benefits, consider the following…

• Team Morale and Retention: Businesses that offer benefits are likely to have higher team morale and retention. Leading to a more stable and productive team, reducing turnover and training costs.
• Productivity: A team who receives benefits such as healthcare, retirement plans or wellness programs may be healthier and more motivated, leading to increased productivity and efficiency.
• Competitive Edge: Offering benefits can make a business more attractive, giving it an advantage in hiring top talent.
• Costs: While benefits are an additional expense, they can lead to long-term savings with reduced turnover and improved team performance.
• Team Satisfaction: When a team feels valued and appreciated it’s more likely to provide better customer service, leading to higher customer satisfaction and increased sales.

While both businesses may appear equally profitable on the surface, the one offering benefits may have long-term advantages. It’s important to analyze the benefits offered, their costs, and their impact on the overall business.

Because so many shop owners don’t understand their financials many question their ability to run their business. This can show up as defensiveness. Confidence comes from the effort made to understand and use financials to make better decisions.  It’s time to work smarter not harder and have a business that is not only profitable, but sustainable, and enjoyable. Design a business that works for your stage of business and life. It’s never too late. Your family and friends will enjoy the change.

Maryann Croce, a certified partner of Todd Herman’s 90 Day Year™, is a coach/speaker and creator of ‘3-Day Weekends’ System. Her company Small Biz Vantage specialized in performance and leadership for automotive and skilled trade business owners. She has been an auto shop owner since 1999. 

You can reach Maryann at (203) 913-7741 or maryann@SmallBizVantage.com Maryann speaks on strategies to achieve work-life fulfillment SmallBizVantage.com