Learn to Love Financial Data

What would you think if you heard someone say that company management should learn to love financial data? You might think they had lost their mind. Have they?

Attention Getter

Actually I used that question to get your attention. No, I don’t really expect the management of any company to get to love financial data. On the other hand, I do think they should develop an appreciation for it. I’ve seen business owners who didn’t understand the finances of the business and/or did not want to take the time to comprehend what it can tell them. They may be so focused on just getting the next sale that they lose sight of the fact they need to make a profit.

How to Appreciate Financial Data

If you are a business owner or manager and your eyes glaze over when finances are discussed, you owe it to the company, employees, vendors, customers, and yourself to get past that and at least get a fundamental grasp of financial data.

Some Examples

It’s easy to get caught up in the day-to-day of a business and overlook important things that impact the financial health of the company. For example, are your inventory levels justifiable? See 3 Low Cost Sources of Cash – Part 1 and Small Inventory – Big Benefits for more on this. Is your accounts receivable under control? See 3 Low Cost Sources of Cash – Part 2 for the benefit of keeping this under control.

There are numerous other areas where it is highly beneficial to understand financial information. In the area of inventory, it helps to not only control the total amount carried but also to drill down into the details to identify slow-moving items that need to be put on sale or liquidated as they are using capital that could be better used elsewhere. I think this and past-due accounts receivable are the most frequent areas where financial matters get out of control, and I have seen it repeatedly.

Personnel headcounts and personnel costs can quickly get out of hand. I saw this one at a client a number of years ago. It was a big area of waste.

The Bottom Line

No, you don’t have to learn to love financial data, but you would be wise to at least have a fundamental understanding of what it can tell you and make use of it. Without doing that you leave you and your company at a disadvantage.

If you want to know more, contact AimCFO – Contact

As always, your comments are welcomed.

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