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Wednesday
Sep122012

CEO School: Learn To Read Financial Statements

CEO School is a series of posts that are aimed at helping founders of direct selling startups with the principles of knowledge they must possess in order to build a successful direct selling business.  This is Part 1 of 23.   

The first time I was exposed to P&L responsibilities was early in my career at Avon.  Introducing new products was fun, until I became responsible for the other end of the product funnel: disposition of excess inventory.  It was then that I became acutely aware of the wisdom of only introducing the most powerful concepts, while at the same time planning for their disposition after a certain time.  Later came country P&L responsibility, but I will always remember inventory control as the single most important step I took into management.  Later, as a General Manager, it was absolutely imperative that I learn as much as I could about financial statements.  The problem?  Although I read several decent books on the subject, I never really found a great book that helped me master the subject.      

A few years ago, I was at an airport bookstore, and found the book I wish I had had when I needed it.  It is titled "Financial Intelligence for Entrepreneurs" by Karen Breman + Joe Knight.  I can say without a doubt that it is the best book on financial statements that I have ever read!  Both authors do a great job of making it a FUN read!  (Just take a minute to let that last sentence sink in..)

"Some read Playboy, I read Annual Reports" - Warren Buffett

If you are an entrepreneur looking to start your own direct selling company, especially if you may be looking for future funding, I cannot overemphasize the importance of understanding all the terms in this book.  The book explains why you need to understand the basics of finance much more than you need to understand accounting.  Accounting teaches us the history of sales for your company.  But since you will hire a bookkeeper and accountant anyway, you don't need to get bogged down by that.  An entrepreneur needs to comprehend the numbers (and their meaning) that the accountant places in front of him to help create strategy for the business.  Most important, you want to leave the investors and financial people putting together a deal the sense that you really understand the numbers and their impact on the business and the deal.

Author Joe Knight being interviewed on his book "Financial Intelligence for Entrepreneurs".

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