Photo by Robbie Chettri
Reading Financial Statements is More Than Tea Leaves
I recently posted a blog article that goes over the three key financial statements every business owner & manager needs. Reading these Financial Statements is crucial to understanding the financial health and performance of your business. Many years ago, a business owner (who later became a client) asked if reading these financial statements wasn’t just the equivalent of reading tea leaves or some kind of astrology. He was half joking I think, but it’s a perfectly respectable question.
The Three Most Important Financial Statements
To Review, those three important financial statements for business are the Income Statement (or Profit and Loss statement – often referred to as the P&L), the Balance Sheet and the Cash Flow Statement. Just these three reports can inform just about every important decision you and your business managers make.
Seems More Like Tea Leaves
But deciphering what’s in those three financial statements can be difficult for those who are first exposed to them. To some, it can seem as arbitrary and random as reading tea leaves or getting your horoscope.
Now, maybe it’s because I’m a reformed analyst – a numbers guy who loves finance – but I’d say that understanding those statements is way different (and more important) than reading tea leaves. Tea Leaves or Astrology portend to predict the things you have little to no control over – whether you find the love of your life or happen into something good or bad. You can’t control the stars or what they may be saying will happen.
Improve Business Decisions
The difference is those financial statements can guide you on the choices in your business that you DO have control over – spending, investments, hiring, taking on debt. These are all choices that you and your business managers are making … and those financial reports? They provide hard data, so those decisions can be more informed, more optimal, and just plain better.
I get it. Business Finance may not be your thing. I’m sure you have things you can do that I can’t wrap my head around. But I can help you understand those financial statements which will likely be the difference between business success and possibly losing everything.
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