Is your business facing a life-or-death situation?

How do you know for sure?

The best way is to have Financial GPS installed in your business.

Last week I shared a quick snapshot of what Financial GPS entails. If you missed it, you can check it out here.

As promised, today, I want to dish out some details on a key step to setting up Financial GPS in your business: having good financial reporting.

Read on!

What’s your business’s financial diagnosis?

Many business owners face life-or-death situations in their business each month.

These threats to their business, their livelihood, and their dreams may include:

• Limited cash flow
• Low profits
• Poor margins
• Submissive pricing
• Subpar spending

To name a handful of common challenges.

And while these afflictions are curable, many business owners never bother to take the first step towards improving their situation:

Having the right data and reporting to make an informed diagnosis.

Without good financial reporting, it’s almost impossible to effectively diagnose your business’s financial health.

And getting the right diagnosis is crucial for getting a clear action plan to reach your goals.

FACTS Framework for Good Financial Reporting

Fortunately, I’ve developed a simple framework to help you ensure you have good financial reporting in your business.

My FACTS framework will give you a clear picture of where your business currently is financially.

FACTS stands for:

• Faithful - accurately reflects the financial reality of your business
• Accessible - the easier your financials are to access, the more you’ll likely use them
• Compliant - follows applicable accounting standards (e.g. US GAAP)
• Timely - the more recent your information, the more useful it is for making decisions
• Simple - the easier your financials are to understand, the more you’ll likely use them

Let’s look at a recent example of applying FACTS to a business.

Recent Case Study

One of my service business clients, a $10M academic coaching business, felt stuck.

Their business had been stagnant at $10M in sales for the past several years.

In addition, their cash flow seemed to be getting tighter.

The owner wants to retire in a few years.

But, they didn’t feel like they had a great grasp of their business’s financial workings.

Or what to do to improve performance.

So, we used the FACTS framework to help them get clear on where their business stood.

• Faithful - their books needed some clean-up. None of the balances were reconciled and their appeared to be some inconsistencies. My team and I handled this clean-up work.
• Accessible - their accounting was done in QuickBooks, but the owner wasn’t familiar with how to navigate the software and didn’t request regular reports. We scheduled a monthly CFO call to walk them through their numbers and provide guidance on next steps.
• Compliant - the books were compliant for tax purposes. But, as a management tool, they needed to be adjusted to better reflect the timing of revenues and expenses. My team and I gradually transitioned them to accrual-basis bookkeeping.
• Timely - the financials were prepared monthly, but the owner only reviewed the reports a few times per year. We solved this with our monthly CFO call.
• Simple - the financials were overly busy and complicated, making them harder to understand. Instead, the owner relied on bank statements and gut instinct to keep up with expenses. We fixed this by organizing and simplifying their chart of accounts and reporting. Additionally, our monthly CFO call helped them gain confidence in understanding the story told by their financials.

As a result, the owner has greater confidence and clarity around their financials. They now have a solid basis from which to strategize how to improve their performance and prepare their business for an eventual sale. My team and I are guiding them through this strategic thinking and serving as a sounding board for better decisions.

What’s next?

Using my FACTS framework to get clear on where your business is at financially is an essential step to reaching your financial goals.

But it’s part of a larger process to implementing Financial GPS in your business.

Recently, I shared another important part of this process, setting the right financial goals (see my 4W1H Method here).

Next week, I’ll share the other part, using good financial forecasting. As part of that, I’ll also dispel some dangerous myths of what financial forecasting isn’t.

If you’re committed to reaching your financial goals in your business, you won’t want to miss it.

Stay tuned!

In the meantime, if you’re looking for more, there’s a couple ways I can help you:

1. Watch my free on-demand training on my 5-step system you can use to get the financial results you want from your business and feel less overwhelmed. Free training here.
2. I can help free you from financial stress in your $1M+ services business and discover a faster route to the results you need for the life you want. Book a call here.