As the saying goes, “numbers don’t lie”. People can fudge numbers and lie through them, but even such fake numbers can tell the truth on real fraud. I brought up this saying because the numbers generated through business accounting are critical to a company and its life span. All of the many different financial reports and analysis ratios act as medical screenings, communicating the health of an organization to stakeholders. They let management and leadership know what’s working, what’s not working, where the pain points are, and where the strong points are. It details to investors how strong of a performer a company can be for their portfolio. When generated properly and accurately, they give lenders confidence to extend resources. They document patterns and trends that can be used for very helpful assessments. And yes, they keep everybody in business honest (more often than not).
Since I’m pretty sure I’m not the only person regularly tuned in to Shark Tank, you’ve probably noticed how the sharks often vet which businesses that they’re willing to invest their money in by asking many questions pertaining to financial reports, particularly Balance Sheets, Income Statements, and Cash Flow Statements. They want to know the numbers because it’s like a medical professional checking a patient’s vital signs.
That said, the numbers game is inevitable when it comes to successful entrepreneurship. Great branding along with stellar pitches made by charismatic founders will open a lot of ears and salivate plenty of venture capitalists’ taste buds – until the numbers come into question. Too often I see entrepreneurs give awesome pitches and build tons of excitement, only to crash and burn because they either don’t know their financials, or because their accounting numbers reveal an out-of-shape organization on the brink of a health crisis.
Some advice for winning the numbers game:
1. document everything
2. keep hard-copies and digital copies of receipts and other vital financial records
3. enlist professional accounting services as soon as feasible, whether in-house or outsourced
4. become very familiar with your balance sheets, income statements and cash flow statements
5. don’t just leave it to the “accounting folks” – as an entrepreneur, treat reviewing your financials like checking your own medical vital signs