We’ve all heard it a million times…your financial statements tell the story of your business. It’s true, but as with all stories, the truth of what you’re hearing has a lot to do with the storyteller.
In reality, it’s easy to manipulate financials, and businesspeople do it for a variety of reasons. Maybe a company is trying to raise money or make a sale, merger, or acquisition happen, and their financial consultant or CFO advises them to show as much profit as possible. One way to do this would be to overemphasize revenue on your balance sheet, regardless of how many invoices have yet to be paid.
Yet this is only one kind of deception. A more common scenario, in fact, is that we use our financial statements to tell stories to ourselves.
It can feel good to tell ourselves we’re a really profitable company because our books look good, even though the reality may be much bleaker.
It’s a hard truth but one you need to hear: Make your cash flow statement your Bible when making business decisions. It’s your cash flow statement that tells you how much money you have on hand to run your operations, pay your people, and invest in growth.
Using your financials to tell yourself stories may feel good in the short term. However, it’s only by being honest with yourself about your true financial picture that you and everyone you work with will be happy (and prosperous) for the long run.