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  • Writer's pictureJeff C

Release Your Inner Numbers-Nerd

We prepare a lot of Balance Sheets, P&L statements, and Cash Flow statements for clients. Most of this work is done in support of new businesses, new product lines, or new funding initiatives. But, these financial documents also have a lot of everyday value to a small business. Many of our clients leverage these documents for day-to-day management and strategy adjustments.

Financial management is very much like personal health management. We all know that annual physicals are valuable and an important part of a preventative health strategy. Those that leverage their annual checkup are much more likely to uncover issues earlier. Likewise, financial checkups are powerful business tools that enable owners/managers to act in a more preventative than reactive nature. Rather than responding to something that already occurred, closely analyzing financial statements enables forward-thinking decisions that benefit the business.

Financial statements are much more than a collection of numbers. They tell a story about a business. When the right questions are asked and supporting data is correlated, insight can be revealed that goes far beyond revenues and expenses...and assets and liabilities. The numbers can tell how a business is operated, what produced a profit, if goals are being achieved, or what might be changed to improve performance. For example:

· How does a particular expense affect profit?

· Did a marketing campaign increase customer orders?

· Is our cash flow increasing or decreasing?

· Is business sustainable?

These questions, and more, are often answered through a closer look at financial reports and trends.

Now or Later

P&L and Cash Flow Statements can also be used for tabletop planning exercises to ‘pressure test’ a business. At OnTarget Strategy, we make it a habit of creating ‘best case’ and ‘worst case’ version of such statements to better understand how well a business can react to different situations. Sure, your ‘expected plan’ is projected to deliver profitability and long-term success, but what happens if revenues decrease by 20% and account receivable increase by 50%? How long will the company last in this scenario? What will you do?

We completed a similar ‘worst case’ exercise for a client two years ago. The ‘war game’ we created came within 10% of his actual COVID-19 revenues and profits. It’s unfortunate that his business took a downturn due to the pandemic, but at least it wasn’t the first time the situation was discussed.

Data Nirvana

Financial statements yield much more than a net profit figure. A closer look at the numbers individually and collectively can be enlightening. They provide better insight into:

· The amount of cash available to pay employees, vendors, and owners.

· The effect of payment terms offered to customers.

· The cost to actually produce a product/service, also known as gross profit.

· Operating revenue analysis by products, services, or location.

· Periods of past or projected negative profitability.

Gathering the data, asking questions, and taking action require time and effort. It’s not a 5-minute process. But, the operational and strategic insight gained with such an exercise is invaluable to your business…no matter the time investment.

Financial statements are the health reports for your business. They can provide incredible insight to drive proactive planning and action. So, the next time the accountant sends the quarterly updates to your inbox, open the email with gusto and dive into the numbers like the nerd you are. Your business will thank you.

Have more questions about financial reports or business management? We'd love to help. Contact us at to keep the conversation going.

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