Financials Don’t Tell You How to Grow

I’ll always remember the moment when the owner of a home improvement company really understood that the financial statements of his company only told him what, but not how.

He wanted to double the company’s revenue in three years. He’d poured over his financials–P&L, balance sheet, cash flow statement—and had created versions forecasting different revenue and expense scenarios. While he could see the revenue target he needed to hit, and the cost goals that would boost profit, he kept asking me “How do I make these happen?”

Every smart business owner has a CPA, accountant or bookkeeper to turn all their financial records into the proper Profit and Loss statement, balance sheet and cash flow statement required by law and banks or investors.

Most business owners struggle to make the leap from what those statements tell them about their past actions to the actions and activities needed to reach future goals.

Over my years consulting with owners in the $5-20 million range, I’ve identified the following methods for achieving their future financial goals. These methods are not revealed in the ‘what’ of the financial statements. They are created by adjusting the ‘how’—the internal workings of the company.

  • Knowing your buyers. Segment by various buying behaviors to get a 3600 understanding of what makes them buy; and what will keep them buying from your company. Sales numbers on the financials only tell you what they bought in the past; not why or whether they will buy in the future.
  • Deep thinking about your offerings.
    • What should you keep and what you should you discontinue?
    • What takes a lot of effort to sell but generates low profit? The financials will tell you about the profit but not about the effort to sell that item.
    • What sells large volumes but generates low profit?
    • What are entry level offerings that lead to buyers choosing higher value offerings?
  • Considering opportunities for improvements and innovations. These ideas come from the people who deal with buyers every day, not from the accounting department.
  • Asking buyers what else they would like to buy from you. Your financials only tell you what they chose to buy in the past. They may not make those choices again.
  • Committing to great customer service. This commitment starts with the behavior of the owner. No number on the financial statements will tell you how your behavior affects that of your employees.
  • Positioning. Positioning is the place your company stands in the minds of your buyers. The preferred place is “top of mind.” Your financials do not tell you anything about this.

What are you doing to build your future beyond getting a set of accurate financial statements every quarter and at year end?

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