Chapter 6 Analysis of the Financial Statements and Projections Who are the people who count the beans? For many years, financial people have been known as “bean counters.” Although the term is belittling, these people play an important role in the company. If the numbers are not correct, there is no way to manage the business. If the financial side is in the hands of incompetent people, the business is doomed to failure. The safety of your investment depends on these bean counters and how they keep the books of the company. The procedure in analyzing this area is the same as it was for the areas already discussed. You will need to analyze the financial people before you analyze the financial area. You need to know the individuals who will carry out the financial plan. You need to know who has computed the projections for the company. If you haven’t yet interviewed some of the financial people, you should do so now.Personnel You should first concentrate on the background and experience of the people in the financial area. Obtain a short resume on each of the key financial people and look for experience in 141142the small business area, specifically in helping small business companies grow and managing the financial function of small companies. These are key attributes of anyone in the small business area. You should analyze the financial people in depth, as you did with the personnel carrying out the marketing and production functions.Analysis of the Numbers All of the qualitative analysis accomplished in the previous chapters now needs to be transferred into a financial analysis in this section. That is, all the qualitative data must be verified in its quantitative form. All the achievements of the marketing and production department must now be stated in terms of financial achievements. At this point of the analysis, you must turn all of your thoughts to numerical concerns. As most managers know, you have to “live and the by the numbers.” It is wise to start with the year-end numbers, then go to the interim financials. Usually, the year-end numbers will have been prepared by an auditor and should have been certified.Financial Analysis The first place to begin the financial analysis is to study the historical financial statements of the company. One must first verify that these financial statements are accurate and current. Frequently, a small business will try to skimp on financial data by not preparing regular financial statements. This is a sure sign that the company is not being run by the numbers and should give you a clear indication that the company is not serious about using the financials to guide the management team. Before you begin investigating the financial section of a company with old historical financial statements, you may want to have the accountants come in and review the situation. Accountants call this an operational audit of the numbers. Ask accountants to review companies with old financial statements, and be wary .