Stop Managing Finances Based On Your Bank Balance | Ep 1

Financial statements aren’t just for tax season—they’re the roadmap to smarter business decisions. In this episode of Full Send CFO, we break down how your P&L, balance sheet, and cash flow statement provide critical insights that drive growth, profitability, and strategic moves. Learn how to read between the numbers and use financial statements as a tool, not just a report.

In this episode, we cover:

• How each financial statement tells a different part of your business story
• The key metrics and trends that indicate business health
• Why cash flow insights are more important than profit alone
• How CFOs use financial data to steer decision-making
• Avoiding common mistakes when analyzing financials

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Full Send | Accounting & Data

LinkedIn: Roman Villard, CPA
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Transcript

I see it every day in my day to day life where a business owner has taken a massive leap of faith to start a business, to jump into their passion, to help other people, to create something that's making a difference in the world. And the faster that they get down the path, the more that they get down the journey of building their business, the less they actually pay attention to their financials and or don't really know how to understand what they're doing.

What their P&L is telling them, what their balance sheet means, how to interpret a statement of cash flows. And so our intent here is to try to create an asset to try to create education around how to understand your own financials without having to pay hundreds, thousands of dollars to somebody else, to give them insights on your financials.

Let's at least try to extend the runway of your own.

Gifts and skill sets and interpretation of data in order to create better decisions for your business today, we're going to dive into the basic financial statements that you may be getting from your accounting system. That would be the profit and loss, the balance sheet and the statement of cash flows.

What we see so much is that business owners are managing their business finances based on looking at their bank balances. Hey, do we have enough cash to pay the bills? Great. We're good to go. Do we have more cash than we had last month? Awesome. We are, we're doing well, but it doesn't really tell a big deal.

True picture of the business. You're not actually digging deeper to understand what's happening to drive the cash coming to your business and or leaving your business. The financial statements are far more than just a compliance tool. We're trying to create decision making weapons for you, trying to create a relationship between the decisions that you're making in business to the financial impact that it has on your financials.

So when you think about your P&L statement, your income statement, we're looking at revenue, we're looking at cost of goods sold, gross profit, expenses, and then your net income. There's so much here that can drive an understanding of how you're actually generating revenue that it's important to dig in here.

Now, when we look at the balance sheet, we're looking at a bigger picture snapshot of like what the business owns versus what the business owes. And also equity is involved there too, but we're not going to focus on that today. And then you also have your cash flow statement. So that's really the financial pulse of the business, but it's often ignored because quite honestly, it's hard to read.

So when we think about the P and L and the strategic role of the financial statements, we're really looking for trend spotting is our revenue growing But our cash declining, we need to investigate that. Do we have capacity to make hiring decisions? Do we have a higher margin than anticipated because we're actually stretching our team really, really thin.

Are we able to expand in sales and marketing spend because we've seen a good relationship between historical spend and a revenue increase. The P&L is a great place to start digging into trend based insights as to how you're actually investing dollars to create. Momentum for your business that can also be related in the balance sheet as well.

If you're spending dollars for assets, you're utilizing it to generate a return. But by far and large, we're going to be looking at the P&L to understand where your dollars are going. Another thing that you can pull out of the P&L is pricing strategies. Do the margins that you have actually drive sustainability for your business?

Do you understand what your margin is? Are you actually categorizing from a chart of accounts level, what your cost of goods solds are in a quality manner? We see this all the time with particularly inventory based businesses that are on a cash basis of accounting, meaning that As they make purchases, they are expensing the purchases when the dollars go out of the business rather than matching up that spend when the service or product is actually deployed.

And so when we see these massive margin swings, when an inventory based business purchases inventory, maybe for the next quarter, and then on their profit and loss statement on their income statement, they see a massive dip in margin because all of that inventory purchase goes to cost of goods sold in the month in which it was purchased.

That can be really challenging to understand. Do you have an appropriate pricing strategy? The last piece here is utilizing your P&L to, to share to external stakeholders. Do, do your investors, do your lenders have certain expectations of what your revenue level should be at in order to help them understand how to better capitalize the business?

Now, lenders may specifically be looking more at your balance sheet and your liquidity. However, the P&L is a good representation of, are you moving the right direction? So what we see most often is that, Owners are really looking at revenue with that without assessing profitability or an understanding between gross revenue and the net income and kind of confusing the profitability of the business with the cash flow because they're relying on financials once a year instead of making it a more of a weekly and monthly habit.

So if we can take something away from this, if we can try to understand how do we start digging into these things, we need to be reviewing these statements on a monthly basis and not just the P&L. But if you can focus on the balance sheet and your P&L and look at trends and relationships between those statements and not just single numbers, you can start to understand what direction your business is going. For example.

I would start by looking at what does your cash trend look like relative to your revenue generation? You may be seeing a trend where your revenue is actually increasing, but your cash is decreasing. And that may be a red flag to you to dig into something like personnel costs or sales and marketing costs.

There may be an inverse relationship between your sales and marketing spend and your revenue growth. And that may seem counterintuitive when your revenue is growing. However, if you're Customer acquisition costs are out of whack. You may start to see that relationship take place. So if you start to make those connections, it could be a really helpful starting point.

However, you need to understand that the basis of the financial statements, the actual accounting itself is mission critical for you to be able to analyze quality. Data. So as a quick action point, take a look at a three month balance sheet, going back in time, three months, go into QuickBooks, say, Hey, for the last 90 days, for the last three months, what does my balance sheet look like?

What does my cash balance look like? What does my P&L look like for the last three months alone? That will start to give you an indication of how some of these relationships exist. Now, if you're on a cash basis of accounting, that's okay. You just have to understand how that is different than an accrual basis, which we would likely recommend is probably a better way to understand the month to month trends in your financial statements.

So that's a high level overview of your basic financial statements. We will dive into cash versus accrual. We will drive more into your statement of cash flows and how to start analyzing those things. Your financial statements should be a guide for your business strategy and not just sitting in a folder or not just used for tax compliance.

So we need to start using them as a real time GPS for your decision making in your business. More next time.