The Numbers ARE the Story

So, You Are Presenting to an Investor?

Before you request money to take your business to next level, you had better know your numbers. Any discerning investor will want to know financial details, and more so, they will insist on you knowing your own numbers. Knowing your financial numbers provides confidence in and credibility to your company.

Numbers go beyond Revenue .

Although revenue is important to an investor, the details behind the revenue are even more so.If you offer different products or services, especially if you have bundled pricing, how profitable are you at each? Have you considered all the costs involved?For instance, if you have employees, have you included not just their hourly rate to do a job, but the employer payroll taxes and their vacation and health benefits? Often, business owners forget to consider costs such as machine maintenance expenses or increase in electricity bill to run a machine.True cost accounting can sometime tell a story with an enlightening ending.

I had a client who was pushing a certain “widget” and it was bringing in the most revenue.Sounds good, right? Once we applied specific accounting strategies, we uncovered the cost per “widget” (including machine maintenance, fully-loaded payroll, increased electricity load, shipping costs, packaging, sales commissions, etc), the true story emerged. He was losing money every time he sold a “widget.”Revenue doesn’t automatically mean profit.

When you are presenting to an investor, it is beneficial to have these numbers. Often times, it is in this detail where investors can see where money can be made or saved, and how they can help take your business to the next level.

Know the difference between Expense and Asset.

Be sure you are accounting for things correctly.A common mistake I have seen is an entrepreneur who considers everything they purchase is an expense. What do I mean by this?

Let’s say you purchase a $5,000 tool that will last 5 years. Treating it as an Expense, this would mean you Net Profit just went down by $5,000 (Negative $5,000).But this tool is going to last over one year; in fact, it is going to provide value to you for 5 years.This is an Asset. A $5,000 asset! If you classify it correctly in your accounting system, this should show on your Balance Sheet as such.Because you will reap the benefit from this tool for 5 years, you would divide $5,000/5 years and Expense $1,000 in depreciation for this year.Your Net Profit for this year went down $1,000, not $5,000 – a difference in a Positive $4,000!

An investor will want to see your Balance Sheet. This shows your Assets, your Liabilities and the difference between the two: your Equity (Equity can be positive or negative).An investor will want to know these numbers.Is there any value to the company as a whole? Are there assets with value? Is the company heavily in debt? Be sure to know these numbers.

Cash Flow is King

Personally, the Cash Flow statement is my favorite financial statement and it doesn’t seem to get as the kudos or acknowledgement it deserves.This statement really has a story to tell.Your profit and loss statement may show wonderful numbers – big profits, and you still may have to close your doors.Why? Cash Flow.

For example, if you are not collecting money from your customers fast enough to pay your bills (especially, quickly rising bills in a growing company), you are short on Working Capital.This will show on the Cash Flow Statement.An investor will want to know how much Working Capital is required to ensure their investment can survive the growth period.

Bottom line, you have to know your business, not only what you sell, but the story about what you sell—the numbers tell the story. Here is to turning yours into a Fairy Tale!