This is an excerpt from Small Business School.

Hattie: What is FSU and who needs to go to FSU?

Jim: Well, FSU is an acronym I used in the book for Financial Statement University, and who needs to go there? Anyone I repeat anyone who is in a position to consult with or help small businesses.

Hattie: Okay.

Jim: The theory behind all this is that you cannot help the small business without first knowing how to read their financial statements.

Hattie: Jim reminds us at our financial statements have three parts. The balance sheet tells us where we stand today. The profit and loss tells what we’ve been in the past and the cash flow projections predict the future.

Jim: The balance sheet gives you the financial set ups of your business today. The left side basically shows you what you have, all your assets and the right side says who owns those asset. Part of them are liabilities, part of them a net worth. The liability part means somebody else owns them. The net worth means you own them.

If you have a million dollars in assets and your liabilities are $400,000.00 and maybe it’s a bank loan or maybe it’s your vendor payables then the vendors and the bank owns $400,000.00 of your millions bucks and you own the other $600,000.00.

Hattie: Jim and I met at R. Wagner Arts in Portland, Oregon and owner Nani Waddoups gave us a tour. His company specialized in custom finishes for anterior.

Jim: I’m wondering if you used your financial statements regularly to manage your business.

Nani: I do. I primarily use our profit last statements.

Jim: How your balance sheet.

Nani: I don’t really use my balance sheet very much.

Hattie: Jim asked Nani what a gross margin is on most jobs.

Nani: Probably about 25%.

Jim: Very low right?

Nani: Very low.

Jim: And what was it a year ago?

Nani: I can’t tell you.

Jim: So we don’t know your trend, whether you’re improving or not improving.