{"id":448,"date":"2020-03-30T00:48:02","date_gmt":"2020-03-30T00:48:02","guid":{"rendered":"https:\/\/www.b2bcfo.com\/brian-christian\/?p=448"},"modified":"2023-04-18T20:52:36","modified_gmt":"2023-04-18T20:52:36","slug":"your-company","status":"publish","type":"post","link":"https:\/\/www.b2bcfo.com\/brian-christian\/your-financial-performance\/","title":{"rendered":"Are You Happy With Your Company&#8217;s Financial Performance"},"content":{"rendered":"<p>It\u2019s a leading question, I know.\u00a0\u00a0You may be, and you probably have good reason\u00a0to feel that way.\u00a0\u00a0After all, at this time of year:<\/p>\n<ul>\n<li>You have reviewed your previous year end internal financial statements and compared them to the industry averages available from your trade association and you look \u201cok\u201d.\u00a0\u00a0Maybe not stellar, but not bad in comparison to your peers either.\u00a0\u00a0In this economy, these achievements are not to be taken lightly.<\/li>\n<li>Your accountant or CPA has your results, has looked at them for reasonableness based on the prior year, asked you a few questions about them, and has proposed or already made the proper book-to-tax basis adjustments to get them (and you) into the best tax position possible.<\/li>\n<li>Your bank has been apprised of the results and they pass muster with them, they probably are comfortable because:<\/li>\n<\/ul>\n<p style=\"padding-left: 80px;\">o\u00a0\u00a0\u00a0Your \u201cfree cash flow\u201d (net income with depreciation, amortization and other non-cash expenses added back), as stated has sufficiently \u201ccovered\u201d your debt service obligations.<\/p>\n<p style=\"padding-left: 80px;\">o\u00a0\u00a0\u00a0Your net income for the year, less distributions for income taxes positions the company with a net worth that complies with your loan covenants.<\/p>\n<p>Now for the $64,000 question:<\/p>\n<p>What about the assets on your\u00a0<b><strong>balance sheet<\/strong><\/b>?\u00a0\u00a0Financial performance is not only about the income statement.\u00a0\u00a0You haven\u2019t considered them?\u00a0\u00a0You are NOT alone!\u00a0\u00a0Everybody falls in love with the number at the bottom of the income statement\u2026the one with the double line underneath it.\u00a0\u00a0It is, after all, probably the most intuitively understood number for any CEO, owner or manager.\u00a0\u00a0However, it is only one indicator of financial performance and can be misleading if your balance sheet does not accurately portray the financial position of your company.<\/p>\n<p>I know what you are thinking:\u00a0\u00a0Why would my\u00a0<em>balance sheet<\/em>\u00a0make my income statement misleading?<\/p>\n<p>I know I shouldn\u2019t do this, but I am going to answer your question with another question:\u00a0\u00a0How sure are you that your balance sheet accurately reflects the realizable, actual value of your assets like cash, accounts receivable and inventory?<\/p>\n<ul>\n<li>Cash:<\/li>\n<\/ul>\n<p style=\"padding-left: 40px;\">o\u00a0\u00a0\u00a0Are your internal controls sufficient to maintain the integrity of the amount shown on the balance sheet and protect the most vital asset your business can hold?<\/p>\n<p style=\"padding-left: 40px;\">o\u00a0\u00a0\u00a0Are you in the practice of printing accounts payable checks and holding them until they will clear your bank?<\/p>\n<p style=\"padding-left: 40px;\">o\u00a0\u00a0\u00a0Has the balance been reconciled back to the bank balance and been reviewed, questioned and signed off on by an appropriate member of management?<\/p>\n<ul>\n<li>Accounts receivable:<\/li>\n<\/ul>\n<p style=\"padding-left: 40px;\">o\u00a0\u00a0\u00a0Is it possible that invoices to your customers do not accurately summarize what was sold to your customers?<\/p>\n<p style=\"padding-left: 40px;\">o\u00a0\u00a0\u00a0Is it routine practice to issue material credit memos to your customers on subsequent business days after the sale?<\/p>\n<p style=\"padding-left: 40px;\">o\u00a0\u00a0\u00a0Are you in the practice of actively and routinely assessing the credit worthiness of your customers?\u00a0\u00a0If your business consists of high transactional volumes, are you actively managing your customer\u2019s credit limits and days outstanding according to your stated terms of sale?<\/p>\n<ul>\n<li>Inventory:<\/li>\n<\/ul>\n<p style=\"padding-left: 40px;\">o\u00a0\u00a0\u00a0How robust is your perpetual inventory system?\u00a0\u00a0Can it provide you with \u201caging\u201d data on the purchase dates of on-hand quantities?<\/p>\n<p style=\"padding-left: 40px;\">o\u00a0\u00a0\u00a0Do you have routine cycle counting programs set up to verify the perpetual system quantities against physical counts?<\/p>\n<p style=\"padding-left: 40px;\">o\u00a0\u00a0\u00a0Do you actively manage all inventory categories for the number of days\u2019 sales on hand or annual \u201cturnover\u201d?<\/p>\n<p><em>If these numbers trend significantly worse than your industry averages, you run the risk of having un-saleable inventory.<\/em><\/p>\n<p>If your answers to the above lead you to believe that your balance sheet accurately reflects the underlying realizable value of these assets, then you are to be applauded.\u00a0\u00a0Your income statement is not misleading you.\u00a0\u00a0You can rest easy.<\/p>\n<p>If, however, your answers to the above lead you to the conclusions that your cash could be overstated; portions of your accounts receivable may be uncollectible; or your inventory might be over-valued, your income statement as currently presented\u00a0<b><strong>is<\/strong><\/b>\u00a0misleading you!\u00a0\u00a0The current year activity causing some or all of the overstatement must be appropriately written down in the form of additional expense recognized on your\u00a0<em>income statement<\/em>!<\/p>\n<p>In short, the assets on your balance sheet (and the supporting operations behind them) need as much pro-active, professional analysis and management as your income statement.\u00a0\u00a0It takes a seasoned, trusted, long term business advisor to effectively help you manage the above business risks.\u00a0\u00a0You can now afford one with\u00a0<b><strong>B2B CFO<sup>\u00ae<\/sup><\/strong><\/b>.\u00a0\u00a0Each\u00a0<b><strong>B2B CFO<sup>\u00ae<\/sup><\/strong><\/b>\u00a0Partner has the experience, expertise and passion to help you with these challenges.\u00a0\u00a0As a firm with well over 4,000 years of collective CFO experience, each Partner can bring this collective experience to bear on behalf of each and every client.\u00a0\u00a0We are here to help as much as you would like.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>It\u2019s a leading question, I know.\u00a0\u00a0You may be, and you probably have good reason\u00a0to feel that way.\u00a0\u00a0After all, at this time of year: You have reviewed your previous year end internal financial statements and compared them to the industry averages available from your trade association and you look \u201cok\u201d.\u00a0\u00a0Maybe not stellar, but not bad in&hellip;<\/p>\n","protected":false},"author":23,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_editorskit_title_hidden":false,"_editorskit_reading_time":0,"_editorskit_is_block_options_detached":false,"_editorskit_block_options_position":"{}","cybocfi_hide_featured_image":"","footnotes":""},"categories":[1],"tags":[],"class_list":["post-448","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Are You Happy With Your Company&#039;s Financial Performance - Brian Christian<\/title>\n<meta name=\"description\" content=\"Financial performance is not only about the income statement.\u00a0\u00a0You haven\u2019t considered 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