We’ve all had the experience of driving down the road and trying to change lanes, only to realize just in time that there was a car in your blind spot. Or maybe you didn’t realize in time and the day ended much more disastrous than expected. Keeping an eye on our blind spots and checking for things we may be missing helps to avoid these disasters.
The same is true in your business. As a business owner, you might be cruising along, missing something potentially catastrophic because it’s in your blind spot. Nobody likes unexpected surprises, especially ones that may take our business off-course. It’s important to look before you make a move. In business, that means paying attention to what your financials are telling you and understanding how decisions impact each part of the company.
It’s a new year, a fresh start, and we’re all hopeful and looking forward to a successful year. So where should you check for blind spots in your business financials?
- Changes in profitability
- Changes in liquidity
- Changes in asset quality (receivables and/or inventory are turning slower)
- Changes in leverage (debt to net worth ratio)
To find these changes, 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. Recently I’ve talked to at least two clients who had significant increases in revenue, but are wondering where the cash is. I pointed out that the cash is sitting in their receivables and they may not see it quickly unless growth slows down. Many business owners are blind to these types of issues because they’ve never done an analysis like this.
Second, if you have access to industry standards for your type of business, you can compare your data against standards in the industry. It’s important to compare your company to your competitors because you may think your company is doing well, but be surprised to find out you are performing below industry averages.
You can download your free blind spot checklist and some specific areas to watch here.
If you’re still unsure of where your blind spots are, it may be time for a business financial check-up to help you start the year on the right foot.
