Best Practices

SourceLink Dallas: Financial Statements, Not Just for Wall Street

Published Aug 28, 2013

Turn to any financial television station or read a financial market magazine and you will hear analyst discuss the financial reports of a large corporate business.  But when most Main Street businesses start, they do not have analyst and researchers pouring over their business operations, and they do not follow the practice of keeping sound financial statements.  This article is meant to show mom and pop startups that keeping up with your financials is not just for Wall Street, but a fundamental, “must-do,” especially those startups in high-growth segments.  Accurate financial accounting helps to give you a solid picture of the health of your business, allows you to monitor and forecast the direction of your organization, and gives you the information you need to make vital business decisions.

Practice like a professional. – The number one reason I hear entrepreneurs and small business owners state as to why they do not keep sound financial statements is, “I plan on keeping my operations small and simply making enough money to support my household.”  I definitely understand, not every entrepreneur is looking to be the next Facebook, Twitter, or Google.  But no matter if you were playing basketball in the NBA or playing in a recreational league would you not benefit by practicing like Michael Jordan?  Keeping sound financial statements is a foundation and it does not matter if you intend to build a one-story house or a multi-level sky-scrapper on that foundation, it has to be laid properly.  I would argue that no matter if you intend on running a sole-proprietor business or growing a large corporation, keeping good financial statements will enable you to operate more efficiently because you will have a better understanding of your business.

Think like an investor. – Often in those early business stages an entrepreneur will be engulfed in their business and may have tunnel vision on a few tasks such as increasing revenue, landing key clients, or growing visibility and brand awareness.  Those are all vital objectives for a business, especially early on.  The only way to measure the impact of any of these objectives is to analyze the change in your financial statements.  It’s great to land that new whale of a client, but the financial statements will let you know if that client is a benefit or a burden.  Typically large clients are a positive to your bottom line, though there are those clients that can push you in the other direction.  Sometimes to land that large client you may have made so many concessions that all your ice cream melted out of your cone before you could even get a taste.  Your business can benefit by you taking a step back and viewing the business in the same light that an investor would.  Being able to review financial statement with an investor perspective will give you the whole picture of how your business is doing to know if you are implementing the right strategy. 

Technology makes it easier. – I think the hesitation for most entrepreneurs in deciding to produce financial statements right after getting their startup going comes from concerns over cost and resources to implement.  It is true that financial accounting will require data recording, but that process does not have to be costly or difficult.  Nowadays there are numerous options when it comes to financial accounting and record keeping.  Financial accounting computer software programs provide an inexpensive option to produce financial statements and have many features such as automatic download of bank account activity that simplify data-entry and financial statement production.  There are various options besides hiring an outside accountant or CFO for your company.

Keeping sound financial statements is a practice that every entrepreneur should follow from day one.  Financial statements are like road signs you read going down the highway, they help you know where you are and help you navigate to where you want to go.  If you are operating in a high-growth industry, then financial statements are of even greater importance.  This is because typically in a high-growth industry you are seeking investor capital to quickly ramp up your business and depending on how well your  financial statements are maintained and produced could mean not only the difference in the valuation of your company but if investors will even be interested in your business at all.  Contact the Dallas Entrepreneur Network if you need assistance with your financial statements or learning how to understand financial statements.

Content contributed by Jermaine A. Hunt, the Dallas Entrepreneur Network.  The Dallas Entrepreneur Network is a proud affiliate of U.S.SourceLink, America’s largest resource network for entrepreneurs.