According to the Small Business Administration, 95% of the twenty-eight million or so small businesses in the US are what they call “micro small businesses”.[1]^{, [2]}

 

That’s because small businesses are defined as five hundred employees or less, and micro small businesses (“MSB”) are defined as ten employees or less. That is nine out of every ten small businesses in the US! Which means that a large majority of any entrepreneurship conference’s audiences are small outfits, and as such, these small outfits share some familiar challenges such as securing financing to fund operations and growth, acquiring customers to sustain and grow revenue, and preventing founder/owner burn out.

 

That’s why I’m sharing this post with them, with you if you are one, so that in a brief, easy, effective manner you can use your small or micro business’ Financial Statements to tell a compelling, fact-driven story to attract the resources necessary to overcome these common challenges.

 

It’s as easy as answering these following questions:

 

First, “What do you do?”.  This answer indicates a couple things, the owner’s ability to describe what they do or provide, to whom, why, and how it helps those customers.  In a non-technical, simple, compelling way.  Think “I provide two aspirin for people with headaches”.  Simple.

 

Second, “Do you sell any of those services/that product?”.  These sales are called “revenue” on your Profit and Loss or Income Statement financial statement.  It’s the very first line on the “P&L”, which is why we call it the “top line” in the biz.  It indicates hustle, focus, clear communication, customer acquisition, and value; your customers trade you money for what you provide.  It’s not a hobby or a charity, but a legitimate business.

 

Third, “Do those sales make you any money?”.  There is a big difference in revenue, cash, and income.  Income is what’s left on the P&L after we subtract all of the expenses we incurred generating all of the sales.  Expenses like insurance, taxes, pay roll, advertising, and inventory.  Therefore, “income” is the final line on a P&L, the “bottom line”.  If it’s a positive amount, you’ve generated a “profit”, thus the common P&L name for the Income Statement.  If the amount is negative, you’re losing money; you spend more to make and sell what you provide than you make selling it.

 

Fourth, “Are you able to keep any of your Profit/Income to fund future growth of the business?”.  This answer, the amount of Profit you keep in Cash on Hand is found on the Balance Sheet, which is a snap shot at any point in time of what the business owns, what it owes, and what the owner(s) get to keep.  This cash reserve is a ready source of cheap financing to fund growth.  We can also subtract Current Liabilities from Current Assets, “current” meaning something that sales in 12 months or less, or is due in 12 months or less, to show us our “Net Working Capital”.  Both of these answers demonstrate we’re “liquid”, we can meet current and new obligations.

 

“Retained earnings” is also found on the Balance Sheet.  It’s essentially money, value, that we leave in the business as an investment.  It contributes to the next question.

 

Fifth, “Are you able to keep any of your business’ profit for yourself?”.  Many owners, especially if they’re MSBs or startups, don’t think about this.  They focus on making money.  The other side of the coin is that you have to preserve some of it for life, later in it, and future generations.  Otherwise, you have to work until they roll you into a hole.  Takeaways?  Make money, ensuring that you convert some to wealth that you preserve.  Assemble your Avengers; at a minimum get a great financial planner, CPA, banker, business attorney, and insurance broker.  Email me if you’d like me to introduce you to mine.

 

Finally, sixth, “How long do you want to do this?”.  You should plan an “exit”.  Even if it’s work in my business until I punch out.  The point is become intentional; don’t just let the doors close someday.  Will you sell it?  And to whom?  Your employees?  Another company, which is a “merger and acquisition”, or “M&A”, or “strategic acquisition”.  A private equity firm, which is a “private acquisition”.  When considering selling, make sure you’re tracking “growth”, as measured in Quarter-over-Quarter growth of 20+%, Year-over-Year growth of 20+%, and growth in “booked revenue”, i.e., future revenue earned from contracts or subscriptions for example.  This demonstrates “return on someone’s investment”, or “ROI”.

 

Using your financial statements to tell the story of your business is factual, compelling, and honest.  It instills confidence in customers, partners, and investors.

 

Happy business story telling!

 

 

[1] https://www.nerdwallet.com/article/small-business/micro-business

[2] https://en.wikipedia.org/wiki/Micro-enterprise