Well-presented financial reports have value in excess of decision support for your managerial decisions. Remember that financial reports tell the story of your practice. Our use of financials is usually internal, to improve profitability and cash flow. However, after those managerial decisions are made, there are more opportunities in which money is on the table for you to pick up or leave on the table.
If you intend to sell some or all of your practice, investors will make risk and value decisions based on the financial statements you provide them. Just to clarify, an associate buying into your practice is an investor. Of course, you ask ‘what would my associate know about financial analysis?’ Rest assured, investors have advisors. Advisors are trained to read financial reports and are experienced in looking at MUCH better presented financial statements than are the norm in veterinary practice. Your financials are your chance to make a good first impression on the people who will be advising the potential buyer of your practice.
Another opportunity for your financial reports to improve your financial position is when you need to borrow money. Bankers don’t need advisors. Bankers are advisors! They analyze financial reports all day every day. As a rule they look unfavorably at poorly presented financials. I believe there are two reasons for their skepticism of poorly presented financials. First, they are annoying because they require a lot of time to analyze. Second, they increase the risk to the banker of making a bad loan. In today’s economic environment, not many bankers are willing to spend the time and accept the risk of making a loan based on poorly presented financials.
As a Virtual CEO, one of my most gratifying experiences was watching a banker look at the financials of a large client practice that was asking the bank to finance a majority buy-in transaction. We presented the financials first, including a detailed budget and cash flow forecast. The banker took a few minutes and looked through the financials (presented in such a fashion that the key facts are easily located). “Financials like these show me that you pay attention to your business” was the first sentence that he uttered. That was the first impression we were hoping for. The negotiation went very well and the bank made the loan. Sure, the practice was financially healthy. The point is that the financials successfully told the story of financial health and inspired confidence in the banker.
Invest the time to be sure your financial statements tell the story of your practice in the best way possible.
