From screen-printed T-shirts to real estate investing, Dawn Fotopulos (pictured), associate professor of business at The King’s College in New York City, has helped launch dozens of businesses in a variety of industries, either as a principal or a consultant. Her new book, Accounting for the Numberphobic: A Survival Guide for Small Business Owners, reflects the work that has been her focus for the past 15 years: helping turn around struggling nonprofits and small businesses.
Fotopulos started this journey when she was called in to consult with a family business after the husband had died suddenly. His wife and children were struggling to keep the business above water and the jobs of 30 employees were at stake. Helping this business return to profitability, she saw the importance of saving small businesses and the huge impact such work can have on the economy.
“I began to connect the dots between small-business failure rates and the level of ignorance of how to read their financial statements,” Fotopulos says. She likens running a business without understanding the financials to driving on the freeway with your eyes closed. “An accountant isn’t going to run your business any more than a mechanic is going to drive your car.”
Fotopulos lays out five steps for taking the financial reins of your business and turning your struggles into success.
1. Get to Know Your Key Financials
“Recognize that learning to read your financial dashboard is life or death for your small business,” Fotopulos says. Your financial dashboard is your net income statement, cash flow statement, and balance sheet. “Would you invest an hour or so a week for about a month to change the future of your business for the next 20 years?” she asks. “I think that’s a good return on investment.”
2. Learn How to Interpret Your Net Income Statement
3. Don’t Confuse Showing a Profit With Being Profitable
“You need to learn how to read your cash flow statement,” Fotopulos advises. “Most [small-business owners] think that if they get new customers and they beef up sales efforts, they’re going to solve all their financial problems.” But your business can show a profit and still be in trouble because not all revenue converts to cash.
4. Befriend Your Balance Sheet
“You must not take out debt or ask for money from your investors unless you know how to read your balance sheet,” says Fotopulos. “Your bankers and investors care about the balance sheet more than any other statement.” Understanding you balance sheet can tell you whether you are building your business into an asset that you can sell. “It takes several years to structure a business for sale,” she says. With advance preparation, you can greatly enhance the sale price of your business. “Why would you want to leave that money on the table if the balance sheet is the key?” Fotopulos asks.
5. Keep Regular Tabs on Your Financial Dashboard
Fotopulos advises reviewing your net income statement once a month, your cash flow once a week, and your balance sheet once a quarter. You can make better business decisions when you understand how a decision made today impacts your bottom line three months down the road. “Business strategy is about making good business decisions,” she says. “It’s a means to an end — to building a viable, going concern.”
Photo courtesy Dawn Fotopulos