If You Don’t Listen to Your Financial Metrics, It Could Kill You
Let me just say up front that all my interactions with my customers are discreet and confidential. I would never reveal a name or disclose any private information in this blog. However, I do like to relate strategies and behaviors – especially when it comes to financial metrics – that can be a lesson to my readers.
In this case, it could save your life.
The client, let’s call him Mr. X, has come to me because he needs help. Like so many victims of the 2008 recession, he’s seen his business decline in recent years, and he hasn’t figured out how to crawl out of the hole.
My approach, as it always has been, is to start with the bottom line. I asked him to see his financials, from which we would determine where the bleeding originated, and make out adjustments from there.
Now initially when I make these kinds of requests, I get a little smirk from the CEO. “I can look at my financials,” they say. “Just show me the forms, and I can figure that out.” There is a huge problem with that, my friends. Huge.
You may compile, but do you audit?
The problem with that approach is that anyone can compile financial metrics. But they lack the ability to audit them. That’s what bankers do. They approach your financials looking to find the cracks in the foundation.
I asked Mr. X to show me the cash flow analysis that would reveal the cracks. I needed his monthly financials, his cash flow forecast, his new printing equipment costs including installation, space, etc.
What he sent back were not “financials.” The cash flow analysis, for example, was not an accurate picture of earnings and expenses for a year. In fact, it wasn’t even on the correct form that I had provided for him.
I asked him, point blank, why he was not being forthcoming about his situation. It made no sense to not reveal the truth, no matter how painful, it may be. The next time it wouldn’t be me asking these questions. It would be the bank.
“How long can you go on like this,” I asked. His response was a jaw-dropper.
“Until I’m dead,” he replied.
Wow. Perhaps this was said half in jest – maybe some gallows humor. Perhaps he was being sincere. Either way, there was no mistaking the prescience of the statement. If he keeps operating under the current approach, his business will meet an untimely death. And since it’s the business that he more or less relies on for food, shelter and water…
The point is simple. You can live in denial and ignore your financial metrics, but then I’m afraid, you won’t be living much longer. Your business will wither and die. So hey, let’s choose the opposite. As that pointy-eared Vulcan used to say, “Live long and prosper.” Mind your financial metrics, and you can.
Photo by emdot.
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