When I was younger, several of us were over a friend’s house watching television. My friend decided he wanted to make brownies. His dad said, “There’s a box of brownie mix in the cabinet. Just follow the directions.”

You could hear cabinets being opened and closed. A few minutes later, my friend yelled out from the kitchen, “Are you sure about the directions?” His dad told him yes and to read the back of the box.

Several minutes go by and my friend yelled out, “Ewwww – this is gross!”

“What’s wrong?”

He appeared in the doorway with a mixing bowl in one arm. His other arm was covered in brownie mix from his finger tips to his wrist. His dad asked him why he didn’t use the wooden mixing spoon.

“The directions on the box said mix by hand!”

The marketing people probably assumed that anyone reading the directions would know that mix by hand meant don’t use to use an electric mixer. It was obvious to them, so why wouldn’t it be obvious to everyone else?

You are probably thinking, “What does this have to do with my financial statements?” 

Have you ever given monthly financial statements to your banker without providing any explanations for any of the items listed? Maybe you thought it wasn’t necessary. An income statement is straight forward, so why bother? Anyone can see that the numbers add up.

You give the statements to your banker and he makes several observations:

• Revenues are down. Was it due to lower unit sales volumes or did you lower your selling price? If it was the latter, was it a one time promotion or did you do it to meet a competitor’s lower prices?
   
• Payroll increased. Are you adding headcount? Or was it due to the fact that you had to terminate a couple of people and the increase was due to severance payments?
   
• Accounts Payable have increased. Are you not paying your bills on time? Is it due to increased inventory purchases to meet the order backlog?

What’s the big deal? He will call and ask the questions. He leaves a voice mail. You return his call, but he is in a meeting and … You get the picture. You’re busy, he’s busy, and so it continues back and forth.  Much of this could have been avoided by providing some simple explanations. It doesn’t have to be an analysis that would be in a report filed with the SEC, just a few words.

Will this answer every question? There still might a question or two, but it definitely cuts down on the phone and/or email tag. More importantly, it shows your banker that you are not just going through the motions but truly do understand your financial statements.

If you need help writing the directions on the back of the box, call Ed Baloga at 914.474.9547 or via email at ebaloga@b2bcfo.com.