Earl Gregorich, Area Manager & Business Consultant, Greenville Area Small Business Development Centers
Anyone who has worked with small business owners and entrepreneurs has witnessed the good, bad and ugly side of how they track the financial aspects of their operations. Unfortunately, only a small percentage of business owners actually keep financial records and review them to make proactive decisions about the future of their business. The rest are somewhere between overly-reliant-on-their-bookkeeper and just-winging-it. The current COVID-19 disaster has, unfortunately, brought poor financial literacy to the forefront. So, how do we fix this? Well, it takes a concerted effort by all of us to raise the bar and set higher expectations for clients we are working with.
Take a moment and think: before you begin working with a client, do you ask them to see their financials? If you said yes, great! If you said no, ask yourself, why not? It’s pretty safe to say that no matter what consulting role you are in (marketing, HR, technology, soft skills, etc.), the advice you are about to give will have a financial impact on the business in front of you. The business owner or entrepreneur is going to make some kind of adjustment or decision based on your advice, and those will have costs associated with them and hopefully result in a positive impact on their profits.
If we aren’t asking to see the financials before doling out advice, how do we know if the client can afford our suggestion? What short/long-term impact will it have on their cash flow? Will the resulting profits be worth the investment required? Indeed, our advice may be sound, but if it does not fit the financial position of the business, at best, the advice will be ignored, and at worst, the resulting change could do damage to a business we are trying to help.
As a group, we should be working toward a standard practice of requiring entrepreneurs and business owners to provide an income statement, balance sheet, 18-month cash flow projection and a break-even analysis as we start our relationship and then periodically benchmark those numbers throughout our time with them. True, entrepreneurs may not have numbers, but they should have projections. Conversely, business owners may have numbers but may not know how to work with them. Either way, it’s our duty to emphasize the importance the numbers play in our relationship with them and how it can impact the outcomes.
Now before you point out that it’s not our job to be an accountant nor is it our job to help assemble financial statements, let us remember that there are those among us who are equipped and willing to do this work in order to help the larger entrepreneurial community better serve clients. The Small Business Development Centers help entrepreneurs with projections and business owners with financials. Bookkeepers and CPAs offer these services as well, and several lending organizations have limited services in this area also. We should be in the practice of knowing where to send a client to get the numbers straight as we work our own areas of expertise.
In closing, it’s up to us to raise the bar and set higher expectations within our entrepreneurial community. We need to work together, using the resources at hand to improve the chances of small business survival. Many of our clients were not prepared for the tough times surrounding COVID-19, and several could not qualify for disaster funds because they didn’t have an understanding of the numbers or could not produce the data needed to apply. We must do better. Together we can better prepare our entrepreneurs and business owners to become stronger and more financially literate.