I can recall a time I was driving my car on the interstate, a daily occurrence for most Atlanta residents. Traffic was moving surprisingly well, and I needed to move over one lane. I put my signal on, looked in my side view mirror and started to move over. In that moment, I heard the sound of a horn from another car announcing their presence in my blind spot. An accident was avoided, but it was a reminder to me to look before I make the move.
I write this because I often consult with clients who are about to make a move in their business, but don’t take a look at their financials first to be sure there are no blind spots there too. I call those financial blind spots and they can be just as critical to avoid as my situation on the interstate.
You might be thinking, where do most blind spots reside in my financials?
There are 4:
1) Changes in my profitability
2) Changes in my liquidity
3) Changes in my asset quality (receivables and inventory are turning slower)
4) Changes in my leverage (debt/net worth)
How do I find them?
First, try doing an analysis of the last three years historical balance sheet and income statement. You will likely see some changes that have occurred over time. Some good and some not so good. Many business owners are blind to these because they’ve never done an analysis like this.
Second, do you have access to industry standards for your type of business? With that you can compare your data against standards in the industry. It’s important to compare your company to your competitors. How do you stack up in these 4 categories?
Before you make a move, don’t be like me and forget to look over your shoulder to check your blind spot. Look over your financials and check for any blind spots in your company financials that should be addressed before you make a move.