A wise man once told me that the thing that is most likely to make someone feel happy is the feeling of making progress.

You can see this in many ways.

If your football team is second in the league but last week they were first, you’re unhappy. If you’re second to bottom but last week you were bottom, you’re happy.

The timescales may vary but the point doesn’t.

If you’re worth a million pounds but you were a billionaire 6 months ago, unhappy. Worth £100k but bankrupt a year ago, happy.

The same things apply to physical health. If you have an injury then once you’ve accepted the reality of your situation, each little improvement will make you feel happy. It’s an issue that Steve Backley faced in 1996 when 13 weeks before the Olympics he snapped his Achilles tendon. This is an injury that usually takes 13 weeks to heel! How he used that time and got himself back in contention for an Olympic medal is one of the key elements of this part of the BackleyBlack Mindsetting programme and is explained by Steve in the latest video.

Many of you will have experienced the business equivalent of snapping your Achilles this time last year. March and April 2020 were pretty appalling times for many. But owner-managers are a stoic lot. Even those whose industries are the last to re-open have generally speaking accepted the losses they’ve made and are fighting back.

In financial terms though, most owner-managers don’t really understand the one financial document that is the starkest explanation of your current reality: your Balance Sheet.

I know. I blame the accounting profession. All those accounting standards, technical terms etc. Designed to give a “true and fair view”? Or designed to stop anyone who hasn’t spent 5 years studying for professional accountancy exams from understanding it? I’ll let you decide.

But assuming you run a Limited company or Limited Liability Partnership, the Balance Sheet may be the only bit of information that is known about you publicly and be accessed in about 11 seconds (I timed it) by anyone; competitors, suppliers, customers, employees, your ex-wife’s solicitors. You get the picture.

And so they do. Well actually they get the picture of what your reality was on the last day of your accounting year which could be anything up to 21 months ago.

But even if its out of date, it does still tell a story.

About whether you made a profit after tax and dividends that year. About the different assets you have. How much is in the bank. What you owe split between the things payable within a year and after more than a year.

If the net assets on your Balance Sheet are going up, then you’re making progress.

If you’re Balance Sheet’s going down, well probably not. Unless of course you’re just drawing out profits you’ve made, to invest elsewhere.

Of course, if your Balance Sheet tips into negative territory, then you’re technically insolvent. You might be able to trade out of the situation, but you might not. If that wasn’t the case, then there wouldn’t be any call for insolvency practitioners.

Where it goes wrong is where you don’t face facts and reality.

I have a number of clients who have experienced bankruptcy or company liquidation. It can be a harrowing experience.

Many people who have been through it will say that they learnt lots not just from the experience but also from the mistakes they made leading up to it. Their habits and practices changed forever.

But not everyone faces facts and reality. It’s easy to find other reasons why something didn’t go as planned. To externally attribute the causes.

A4G have a whole range of tools available to help you identify exactly where you are right either financially or just organisationally.

Monthly management accounts completed properly with not just basic but advanced controls will tell you exactly how your business performed last month. The five-minute cash flow completed every month will show you the surplus or deficit of available funds compared to what you should have.

And our retirement calculator (especially if combined with our business valuation tools) will tell you if you are on track to be able to retire in the lifestyle you would like.

A year ago, as we emerged from lockdown 1, I speculated on the reality faced by most businesses in my article we’re all fast growth startups now. The issues covered seem even more appropriate as we emerge from lockdown 3.

This time we hope it’s for good. Maybe we can experience that feeling of making progress a bit more often in the next 12 months.

Have a good weekend.

Contact me today!

Malcolm Palmer

FCA

Managing Partner

01474 853856

Send me a message

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