I worked with a project management firm that is a great example of why CEOs need to understand the hard truth with numbers, even if they don’t have a finance background and even if they already have a financial team in place.
I was called in because the company was having cash flow problems, despite what the owner thought was a strong margin.
I helped them conduct an analysis of their financials that revealed several red flags:
First, I found that firm’s controller was “managing” payments to vendors based on who made the most noise.
Second, the company had many unrecorded liabilities, including sales taxes and commissions.
Finally, they were looking at financials on a cash basis rather than an accrual basis – which is a huge problem if you want to understand your business’s financial health.
So, when I worked with the company to recast its financials in accrual basis, I was able to see the impact of all these red flags. The fact was this company had far more liabilities than assets – and it was actually in a full-scale turnaround situation.
The reality is that this CEO never would have realized how serious the issue was if he hadn’t brought in outside, expert support. He suspected something was not quite right and he acted on it by working with me.
He was literally months from losing his business – and, remember, he thought his company had strong margins, so he could have just as easily stayed the course. But he didn’t – he took action and he got educated.