Just like the club with the secret handshake, there is a language that the rich know and you may not.
It’s the language of money. It’s the ability to look at a financial statement, yours or someone else’s, and know where the weakness and the opportunities are.
There are three powerful reasons why learning to read financial statements will be the most important skill you learn as a business owner.
- #1: You can pinpoint potential cash flow issues.
Cash isn’t king. It’s King, Queen, Jack, Ace and every other card in the deck. If you don’t have cash or the ability to raise it before you need it, you’ll soon be out of the game.
Knowing that, I’m amazed at how many beginning (and even some with more years) business owners don’t have financial statements available at their fingertips. Is there any other game in the world that you would show up for, with no equipment, no training and not even a rudimentary understanding of the rules, and expect to win?
The irony is that many business owners are so busy dealing with business problems that they don’t take the time to use the best tool they have for focusing on problems right from the start – current financial statements.
Your business can provide an amazing learning situation for you. As you learn how to understand and use your business’s financial statements to improve the business, you’re also learning how to read someone else’s business.
That skill is a fundamental wealth-building skill that will help you stay away from the hype and nonsense of slick promoters trying to steal your money. You’ll know where the gold is, and where the danger is, in someone else’s business.
#3: No one cares about your business and investments as much as you do.
I think every successful, experienced business owner knows that it’s up to him or her to keep the business on track. It seems like the novices lose sight of that fundamental fact sometimes though, relying on paid mentors or seminar promoter-types to tell them what to do.
Learn the skills you need from your mentors and advisors, but don’t count on them to tell you what to do. Only you can make that final decision and you need good facts to do it. That means timely financial statements that you can read.
Did you notice I didn’t mention asset and tax planning as powerful reasons to have a financial statement? I wanted to keep this post at just 3 reasons, but the fact is you simply can’t have any meaningful conversations about business planning of any kind without financial statements.
If you can’t produce current financial statements that are less than 60 days old within 15 minutes of reading this post, you have a serious problem.