finance, google hangout, podcasts

Is your balance sheet a junk drawer or garage?

I chatted this morning with Calgary based consultant and CA, Brad Celmainis about small business finance.  Brad is an accountant with a great personality who thrives on helping small businesses.  In addition to being somewhat of an Instagram celebrity (click here for his account) Brad specializes as a contract CFO and/or controller.  We chatted about some basic finance topics that every small business owner should consider including why a balance sheet is so important to review on a regular basis and clean-up as necessary.  Brad drew a comparison based on his experience that many business owners treat a balance sheet like a junk drawer or a garage – lots of items in there but no one really knows what they are.

Brad believes that a balance sheet sheds light on the future viability of a business and that one of his first job tasks when being contracted by a client is to review the balance sheet and figure out the cash flow of the business.  He mentioned the term “is your balance sheet mean and lean” as a way to describe what the ideal balance sheet looks like.  He even went so far as to say that business owners should set a schedule with their accounting team to regularly review the items listed and to clean them up or write them off as necessary.  Brad attributed the quality of a balance sheet to the quality of the staff responsible for maintaining it.  Many times a book keeper will record debits and credits correctly but when asked to walk through balance sheet items they often respond with “those items have always been there” or “I don’t know and no one has ever asked”.  Your accounting team should be able to record AND explain the items being booked into the company records.

Why so much focus on the balance sheet?  A balance sheet is far more important than an income statement when it comes to discussing financing and future growth opportunities.  Brad highlights that many businesses will brag about their sales but if your sales are booked 6 months out and a business needs to wait 9 months to get cash from the sale why get excited?  Banks want to know that a business can pay for its obligations and a balance sheet provides for this.

We also spent some time chatting about the “special loans” divisions at the bank and what happens when a company goes into forbearance.  Brad has some great tips for businesses that find themselves in this position.  His overall advice: “Be transparent” and gives an example of a company he was involved with that was able to access more credit from the very bank that had placed the company in “special loans” because of how transparent the company was with the bank.

If you want to visit with Brad it won’t be a waste of time.  His website is www.bradcelmainis.com and he always enjoys connecting with new people.

“Cash is king” – as stated by Brad Celmainis

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