Presenting financial information in an easily digestible format is essential when communicating with external stakeholders such as lenders, investors, and other strategic partners. These communications are vital to the long-term success of a business; however, it can be a struggle for many small and mid-size businesses. To help, below are three keys to successfully communicating the financial state of your business with external stakeholders.
#1 Be Concise
The easier it is for an external stakeholder to interpret results, the easier it will be for the company to achieve its desires from that stakeholder.
- Banks. If you’re seeking a line of credit from a bank, it is important to distill the financial results of the company into a simple format that shows them they should lend to you. They want to know you have the cash to pay your bills. They want to know you have proven you can collect from customers. They want to see profitability that is consistent and stable. If any of these things require explanation, provide it.
- Investors. Investors want to understand why and how your business can generate a return for them and provide comfort that their capital is reasonably safe.
- Strategic Partners. A key strategic partner will want an understanding that they can commit resources to work with you in a manner that will be fruitful.
These stakeholders do not want to weed through a book. Furthermore, simply exporting your income statement and balance sheet directly from your accounting software is not enough. Summary narratives, graphs, charts, and reports can be very effective as they will enable the stakeholder to better interpret the financials of the business, as opposed to allowing them to develop their own conclusions.
At the same time, you do not want to show too much or too little financial information. Voluminous information will likely go unread. While not providing enough information can result in the investor or lender making incorrect assumptions about the business. If more detail is sought, it can be provided.
By making it easier to understand your business on paper, you are far more likely to get the answer that you want.
#2 Clearly State Objectives
What is the business is trying to accomplish with the external stakeholder? You will have a higher rate of success if you anticipate and address the stakeholder’s questions upfront.
For banks, you need to clearly communicate why the money is being sought from the bank. What are the uses of the funds? For example, oftentimes an expansion won’t just require capital to purchase equipment, but could also necessitate additional staff, office space, etc.
The same applies to investors. Can an investor interpret in a quick read the high-level goal(s) the business is trying to achieve? Also, what are the risks involved for the business?
It is also best to take objections off the table proactively. If new competition is coming to the market, what is your plan to combat it? If opening a new market, what makes you think you can be successful there? Laying out potential obstacles tells the stakeholder that you have thought about them and gives them confidence in your business.
#3 Be Honest and Direct
This can often be the toughest of all. No one likes to share bad news. Far too many businesses choose not to communicate at all when this happens; however, when things are not going as well as planned, this is perhaps the most important time to communicate with external stakeholders. Don’t hide a bad quarter; explain what happened and what you are doing about it. Again, this demonstrates that you have a handle on the business and that there is no cause for undue worry. Every business will experience some hard times, but having your key allies informed and confident in your abilities will greatly enhance your ability to weather the storm.
We Can Help
Presenting financial information in an easily digestible format is essential in communicating with external and internal stakeholders. If you’re seeking an increased line of credit, looking for potential investors or strategic partners, or want to improve your internal reporting to management and/or board members, Signature Analytics can help. Contact us today for a free consultation with one of our CFOs.