Jim couldn’t understand it. His successful window installation company had ten years worth of financials. His business had been profitable since day one. He was never late paying a bill and had impeccable credit, but when he applied for a commercial mortgage to purchase a building for the company, two banks declined his application after seeing the financial reports his accountant prepared.
He called Benny Jackson, his personal banker, to find out why the bank declined his application. “Jim, why are you applying for this loan right now?”
“Benny, business has been growing and I’d like to own my building before we expand it.”
“No, Jim, why are you applying right now? Your financials show you have $80,000 as a current liability. What’s going on in your company?”
Benny walked him through the financial reports his accountant had prepared and Jim found the mistake. All of his long term loans on his business vehicles had been classified as a current liability. Jim found a new accountant and received his commercial mortgage.
Reasons Why You Should Understand Your Financial Statements
- Understand the real status of your business. Don’t just rely on what your accountants, business partners, or manager is telling you – understand the real financial position of your business by understanding how to read your financial statements.
- Comprehending the financial reports will make you a more proficient manager. Managers who understand the dollars and cents of the business understand how to talk about investing for projects, better equipment, or the size of your team. You will find people in your organization move up fast if they understand the financials.
- You will improve your communication skills with senior management, board members, and members of your industry. Understanding the jargon of your business is an important part of management.
- You will be better prepared for presenting projects to your peers and superiors. If you understand the the numbers, you will understand how to analyze, interpret, and challenge numbers presented by your peers.
- Your reputation will improve as people will know you understand business financials.
- If you receive a job offer, you will be able to analyze a company’s financial position to decide if it’s a good fit for your skills.
Lessons Learned
Learn how to understand your financial statements to improve your business, your department, and your understanding of business.