On November 1st we talked about accounting being the “language of business”. Now we focus on those groups with whom you need to communicate and share accounting information, how they differ and why they are important. These audiences will vary according to the size and legal form of your business. Whether a sole proprietorship, partnership, LLC or corporation you undoubtedly have several of the audience members shown on the nearby slide. Let’s review them one at a time and consider why they are important to your business.
1. Partner / Shareholder / Member: If you have formed a partnership, corporation or an LLC, you likely have more than one owner, and these common owners have similar if not parallel interests and financial objectives. Regardless of their share of ownership, they have every right to know what is going on in the business, be it good or bad, and at the same time and with the same quality as you. If you engaged them as owners for their ability to provide capital funding or experienced advice, or both, keeping them in the dark will eventually neuter their willingness to provide either. The better informed, the greater will be their willingness and ability to respond on either the capital or advisory front.
2. Your Management Team: This group is easy to take for granted and therefore often overlooked. Your key managers should be viewed with equal importance as the other audiences. Management performance and focus will be enhanced to the degree they understand the strengths and weaknesses of the business. If this group receives the same degree of financial performance information it is easier to get everyone on the same page when strategic directions change. In addition to the core senior group, if mid-level managers are included, their financial learning curve accelerates; their feeling of inclusion increases; their commitment to the company is strengthened.
3. Your Bank(s): Even if your company has the good fortune of being well capitalized, it is smart to have back-up support from one or more strong banks waiting in the wings to assist with an opportunity or emergency. If you are like most companies however, relying on bank financing for seasonal working capital, and / or long-term equipment financing, it becomes even more vital to keep the lead bank and any secondaries informed. Between 1991 and 2006 we were able to grow two businesses from $8MM to $52MM in revenue combined, with $4MM in revolving working capital loans for each. Loan usage moved up and down, but we were never fully paid out for that whole period. That was largely due to providing the bank timely and full blown financial information. Since the financial crisis of 2008 banks have clearly tightened their credit standards and conditions. It is very doubtful that we could repeat that today. As you probably know, banks don’t like surprises.
To keep these short, I will cover the last three audience groups in the next post.