Are you looking at the numbers behind the numbers in your business? Many CEOs aren’t — and can lead to bad business decisions and limit growth. 

A lot of business owners feel like they’re on top of everything with their finances if they track their Profit & Loss (P&L) statement. Unfortunately, that can be misleading. Your P&L is a reflection of your beginning and ending Balance Sheet numbers — so if those aren’t accurate, you’re operating with bad data.

Where you really need to look is your Balance Sheet. But we see many situations where the CEO either isn’t looking at the Balance Sheet on a regular basis, doesn’t have a good understanding of how it should work, or doesn’t have the reporting to back it up — such as inventory reporting.

The consequences of not knowing your business’s numbers

Relying primarily on the P&L means you don’t really have a clear, complete view of your business, which can lead to big problems.

Blown deals

When it comes to mergers or acquisitions, you don’t want sloppy numbers. We were once brought in to clean up a company’s balance sheet and income statement after their acquisition fell through.

During due diligence, the purchasing company investigated the quality of earnings and discovered that three years of P&L reports were incorrect  — and they walked away from the deal. Our client brought us in to get them back on track, and they were eventually purchased. But they caused themselves a lot of headaches by not having the proper processes and reports in place for the original sale. Having a Fractional CFO to support them during the acquisition could have avoided it all.

Employee theft

If you don’t have a good process for tracking inventory, you might find that it starts to disappear. We’ve helped multiple clients uncover employee theft after taking a hard look at their balance sheet and digging into the inventory numbers. They knew something was off, but they weren’t sure where because they didn’t know how to look at their reports correctly. 

Spending money you don’t have

When you’re running your business by focusing on your P&L statement, you could think you’re more profitable than you really are. Not understanding your cash flow and your true profitability might make you think you can make a big purchase or expand your team when you actually can’t afford it. 

Distressed business relationships

Capital providers, investors and banks don’t like giving money to companies that don’t understand their numbers and operate with the best information. Your CPA firm will also quickly tire of dealing with a company with messy documents. These partners prefer clients who are buttoned up and on top of things — and they’re willing to drop those who aren’t.

Poor recruiting

Good accounting labor is hard to find these days, and top candidates are more likely to work for a company that has their books in order. If the choice is between a business with fires to put out in every corner and one that knows their numbers, the latter will win a quality job seeker’s favor every time. 

The How a Fractional CFO makes a difference in your reporting

A Fractional CFO has years of experience in not just guiding companies strategically but also ensuring they have reporting best practices in place for their individual business. They can help you:

• Understand your balance sheet (and all your reports) better and gain confidence in your financial data.
• Set up the systems you need, including software, processes and a culture that prioritizes accurate backup reports and knowing your numbers at all times.
• Help you spend more time on analysis and strategy instead of getting lost in messy, ineffective reports.

Understanding the relationship between your financial statements results in more accurate financial reporting and the ability to make the most informed, strategic decisions. When you have deeper insight beyond surface-level numbers, you’ll know your true financial position.

If you’re in Kansas City, one of the experienced financial leaders at Crown CFO can help you get your numbers on track to set you up for the strategies you need to grow. Contact Kerry George at kerry@crowncfo.com to bring a trusted, expert Fractional CFO to your business.