My first blog on this subject (Business Turnaround) discussed why successful business turnarounds are so difficult. My second blog on this subject (Turnaround – Elements for Success – Action One) discussed avoiding cash surprises. I will discuss the second element of success in this blog; using financial information to proactively run the business.
Too many small businesses only use financial information for what I call statutory accounting. That is accounting information is only used to collect receivables, pay employees, pay vendors, pay taxes, and pay the bank. Financial statements are prepared primarily to keep the banker “happy”.
Financial information is not being used to operationally run the business. Large corporations have a fulltime CFO and a large financial staff to provide more than just statutory accounting and historical financial information. In addition to reporting requirements, the financial information is being used to operationally run the business on a proactive basis.
If financial information is only used for reporting purposes as to what happened, then it is only providing historical information. It’s like being in a car and only looking in the rear view mirror. It’s tough to keep the car on the road if you are only looking backwards.The financial information is not being used to keep the business on course. It is important for the business owner to understand what the numbers mean and what decisions need to be made to keep the business on course.
Business owners NOT using financial information to proactively run the business are at competitive disadvantage.
As the CFO of businesses from $4 million to $120 million in revenues, I would prepare a monthly financial reporting package providing analysis of the operational results. I would discuss the results with the business owner and the impact of the results and the decisions that needed to be made. We would then act upon our decisions. In my next blog I will discuss the third key element to a successful turnaround.
As a Partner with CFO 4 Small Biz, I offer a monthly financial management service providing financial operational guidance that is affordable to the small business owner.
Dave Mayo, CPA, CGMA
Partner, CFO 4 Small Biz