Financial Checkup, “Where you at?”

“Where you at?”  While this statement is grammatically incorrect, it’s a question every business owner/investor asks themselves regularly in regards to their financial health. It is also a question that other folks in your corner want to know including your family, your banker, your accountant, and your lawyer, to name a few. Your Annual Financial Statement/Balance Sheet provides the best answers. Just like your doctor needs to know your vital signs at every visit, the facts contained in your financial statement provide the basis for your financial health.

So, what if I’m debt free? Congratulations! You’re in a small but blessed group but that’s not a good reason to forego preparing a periodic financial report. Doing so is alike to skipping your annual physical when you “feel fine”. Here’s three good reasons why you should keep your financial statement current:

The first reason is to provide a simple compilation of your assets and liabilities. The process itself is good exercise. For most financial analysts, the statement reflects “just numbers”, each item represents a decision you’ve made whether good or bad. Preparing/reviewing the statement is the best way to evaluate your past decisions to remind you of what worked and what did not. The compilation also provides the basis for estate planning.

The second reason to go through this annual ritual is to measure performance year over year. Just like a compass lets you know if you’re going in the right direction, comparing the year-end statements allows you to see the trajectory of your wealth accumulation. Trend analysis lets you see “where you at” in terms of leverage, liquidity, and equity. Are you meeting your goals of better securing the future for your family and/or business?

Lastly, the annual statement provides good, factual intelligence on which to base future decisions. Can I expand? Should I sell something? Buy something? Are my decisions paying off? Do I need to make changes? If you’ve ever driven (or flown) a vehicle without a working fuel gauge, you know your decisions are limited. Not knowing your Key Financial Ratios and Balances when making a quick decision will likely end badly. The year-end balance sheet provides a good look at the fuel level. With this information, you will have confidence when deciding to take an excursion -or not.

Whether you have a full-blown, CPA prepared statement or one you comprise in a spiral notebook, preparing your annual financial statement is just good business. For comparison purposes, it’s best to be consistent with the date, and year-end is the choice of financial professionals. So as the Christmas ornaments go into the box, allow some time to focus on your financial inventory for a Happy New Year.

By Jim Tubbs