Story”Books” — The Story of your Financials
Updated: May 19, 2021
How to create a Storybook Ending
Inside your financial statements is a story. It is a non-fiction thriller. It has an intriguing set of characters that likely includes: villains, a visionary, the main characters, and the supporting cast; or said differently, Customers, Employees and Ownership. It’s a “who done it” and may have an ending that has everyone guessing. Or does it?
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The truth is that inside your financial statements is a novel. Between the front cover and ever-evolving back cover are the guts of the transcript. It’s comprised of plots and subplots, chapters and sections. It has its slow periods and moments that seem like light-speed. Encased within are wins and losses, ups and downs, significant progress and false starts. There are moments of drama, catastrophes, celebrations, betrayal, new friendships and soured relationships. There have been missteps, mishaps, mistakes and heartbreaks. There have been successes, new learning, and unplanned good fortune. Some may even call it luck or good fortune.
And someday, when this novel has finally hit its ending, some of the big questions will be answered:
Was it a best seller?
Did it have great reviews but didn’t reach its potential?
Was it mediocre with significant upside opportunity?
Was it a flop?
The Financial Scorecard
Your books are comprised of a Balance Sheet, P&L (Income Statement) and often overlooked, statement of Cash Flow. The financial statements tell us our cash position, sales volume, inventory levels, accounts receivable, and accounts payable. They tell us how much we spent on payroll and our debt position. Ultimately, they will tell us our profitability (P&L) and our cash position (statement of cash flow).
When it is all said and done, most business owners focus on the top line and the bottom line: sales and profits. Often, the balance sheet is not even an essential part of the discussion. That is a fatal flaw in mindset.
The facts of the matter are this: the financial statements are a “Scorecard.” They tell us what happened. The financial reports, however, fall incredibly short of telling us “how” they got to look this way.
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In reality, when the financial statements are correctly prepared and diagnosed correctly, there is a wealth of information contained therein. You just need to know where and how to look. Some would say, prepare business analytics. While we’d agree that business analytics are necessary for better understanding the financial statements, they also fall short of addressing far greater opportunities tied to the StoryBook. Enter Continuous Improvement!
Continuous Improvement, in many ways, is what takes your so-so novel and elevates it to a new dimension. You see, Continuous Improvement encapsulates many forces to drive overall organizational results, including:
Applying the ideology and disciplines of Continuous Improvement to your StoryBook is synonymous with adding hot fudge to a dish of French Vanilla ice cream or the harmonious joining of peanut butter with jelly. They simply go together.
Earlier, we noted that the financial statements tell you what happened in your business. They inform you that gross margins are 44%, but they won’t tell you how to improve your gross margins to 52%. This equates to an additional $80,000 of profit on every $1M in sales. Of course, we are only hitting the tip of the iceberg. This is why business leaders should embrace Continuous Improvement and especially one of its key subcomponents,Employee Engagement, as a way of life.
We believe in securing a StoryBook ending; that organizations would be well suited to embrace Continuous Improvement. We believe that this transformation comprises three essential pillars: Mindset, Metrics and Execution. It starts at the top and flows throughout the organization.
Continuous Improvement focuses on initiatives that drive business value. When we assess the story, the plot thickens. As we wade through the metrics, analytics, customer feedback, employee inputs and business processes, we see why the financial statements look the way they do. We can now connect the dots to the financial results. We will likely also see opportunities in other aspects and areas of the company.
As we delve deeper into the story and begin a journey toward Continuous Improvement, we can now start to see the backdrops to the story. We now have an approach and methodology of how to infuse improvement initiatives throughout the business. Ultimately this will be the difference between a StoryBook ending or a disappointing finish. Enjoy the voyage!
The financial statements are a scorecard. They tell us what we have for financial results but fall woefully short of telling us how they got this way.
Continuous Improvement is the catalyst for bringing dramatically improved business results. Revenue growth, expense efficiency/innovation and enhanced customer satisfaction, driven by employee engagement are the formulae that drive business success.
We believe this simple diagram of the Employee Engagement Impact Model postures business leaders on the right path forward.
Your StoryBook ending is well within your grasp. Stop looking at what happened and focus much more of your energy on “the How” — and you’ll be on your way toward a more prosperous and fulfilling future.
About The Author David DiPerri, CPA, is a thought-kindler and is the founder of ProsperCI, a business advisory firm dedicated to helping businesses thrive and CI4Biz, an educational resource for business owners and their employees. You can connect with David on Twitter, Facebook, LinkedIn and Instagram.