Financial analysis is the process of accounting for your values.

Financial consulting accounts for your values; it tests your business plan. But it doesn’t replace it. People have a lot of misguided notions about financial planning. It is both integral and marginal to your business. Let me tell you what I mean…

It is like the metal frame that holds a tomato plant. It is not the plant. It can’t make the plant grow! But it can provide structure. Monthly financial meetings provide a mental framework for making decisions. Should you put your financial resources towards more employees? More inventory? More marketing? These questions are profound and open ended. And that’s why I say, finances–and financial consulting–is an accounting of your values. It helps you identify what you value, or show you how to make changes.

And we all know that, like it or not, without the finance piece, the business will not be real, it will not succeed. And yet, the success is not really in the numbers, it simply accounts for what is happening in your company. It is a lens, but again, it is not the actual goods or services that your providing. It provides clues, and done properly, it provides a very clear lens for what you are doing.

The financial spreadsheet provides a context to ask all of these questions and to make strategic choices. In my mind, that’s really the best use of financial analysis. With this approach, the conversation is about building a company on it’s strengths, the conversations are about the strategic use of funds and what, if anything, is no longer contributing to the overall effort.

Financial spreadsheets support your company and mission; they are not a replacement.

There is another kind of financial analysis. That’s the voice that says, “You can’t do it.” “The company will not succeed.” “I don’t have enough montey…” This is the negative talk, the inner doubts, that go hand in hand with many financial approaches to business. It pretends to have reasons and logic, and NUMBERS. But I tell you, it’s a false coin. It’s no wonder business owners try to avoid profit and loss statements. It is important NOT to let financial analysis take over your company and mission. Financial spreadsheets support your company and mission; they are not a replacement. For this reason, I believe deeply that financial spreadsheets, and all financial analysis, need to be introduced properly and carefully. Financial forecasting should always be at the service of your vision.

Your vision might be just a seed of an idea, or it might be a profitable organization with a million dollars of annual gross profits. Obviously, financial analysis plays a very different role depending on the stage of the development of the company.