Creating Financial Transparency in My Business

Gregory Keyes,EO Orange County
Article by:
Gregory Keyes
EO Orange County

"You'll be out of business in three months."

That's what the bank person said. Alison was her name. We had been in business for a few years, and while we were doing a few million in revenue, we had meager profits. At the time, we were banking with one of those "big banks," and we didn’t have any business loans; we were pretty cash conscious. If we had a venture that required more cash than we generated, I funded it as the owner.

When I approached our bank that day, I was simply considering moving our business checking and savings accounts to a smaller bank. I was curious if the move would benefit us. While I asked Alison questions, she perused our financial statements and matter-of-factly concluded that the business would be kaput in three months. I was upset! How dare she? We had been in business for years, and we were pretty profitable… what did SHE know?

After I cooled down, I asked the following questions: Why would she think that? Why would experienced bankers look at my accounting information and conclude that my business was doomed? Either they were right and I was wrong, or the information itself was wrong. Yeah, that was it. The information was simply not telling the right story. That’s what I told myself, but in truth, there was a bigger issue.

After this awakening, I reflected on the viability of the business and the business model addressed in our financials. I couldn’t understand how our financial documents could be so confusing, so heavy that it would elicit such a shocking response. I decided then and there that our books should tell a simple story and drive everything forward at a faster pace, one that anyone would be able to follow— banker or otherwise. My books would be clutter-free, and to prove it, I would get more than one bank to want to loan us money. For starters, I had to do my research.

I began by interviewing a few CPAs, and then ultimately hired Jeannie to help me achieve my financial goals. With Jeannie’s help we re-worked all of our financial books so that they could better explain the nature of my business. In the process, I learned a lot: We were reporting receivables "due" when they were not, because we didn't want to lose track of the future receivables; we were reporting goods "sold" when they were not delivered to the client for months; and we were running our accrual system nearly the same as our cash model (not aligning revenue and expenses. Eventually, we uncrossed our financial wires and cleaned things up.

When we were ready to interview banks, we gave them our newly revised financials and asked them to tell us what they saw before we tried to make excuses or elaborate. The first one or two went okay, but not great, so we did some more work. The final test was to talk to Alison's co-worker, Darren, as if it was the first time we had considered the bank. After reviewing our new books, Darren was able to clearly explain the details of our business, and said that he'd love to do business with us. We had reached our goal of having simple, clean and cohesive financial books!

We ended up working with a different bank, but the understanding I gained regarding the significance of a simple story in our financials has steered me ever since. In the end, I learned that it’s not just "what gets measured, gets done,” but how we measure it that matters, and how we report it that matters most.

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