If You Don't Understand Your Financials, You're Not Alone

If your P&L feels like a mystery, you're in good company. Even accountants I know don't look at their monthly numbers.

One of my favorite client success stories started with a discovery call a few years ago. This was a second-generation restoration company. They had been in business for 34 years. The owner had personally been involved in the company for more than 15 years, and they were doing about $6 million a year in revenue.

From the outside, it looked like a successful company. They had a good reputation. They had work coming in. They had been around for a long time. This was not a startup. This was not a brand-new owner trying to figure things out. This was a real restoration business with real revenue, real employees, real customers, and a long history.

Then I asked him a simple question.

“What do you think you need help with?”

He said, “My financials. I don’t know what the heck is going on financially in the business. I have no idea.”

He went on to explain that every quarter, his accountant would email him financial statements. He would open the email, scroll down to the bottom of the Profit & Loss statement, see whether the company made money or lost money, and then move on. He admitted that beyond that bottom number, he really didn’t know what he was looking at.

Think about that for a minute.

This was a smart business owner running a $6 million restoration company, and he felt completely lost when it came to understanding his financials.

Before we go further, if you're new here, I help restoration business owners get more profitable, reduce the chaos, and build something they can sell for a lot of money someday when they decide to move on.

The interesting thing is that this owner is not alone. This is way more common than most people realize. I’ve talked to a lot of restoration owners over the years who are working hard, staying busy, bringing in revenue, and still don’t really understand what their financials are telling them. Some avoid the financials because they don’t understand them. Some are embarrassed that they don’t understand them. Some are overwhelmed by them. Others assume that’s what accountants and bookkeepers are for.

I understand that, because when I started my restoration business, I didn’t have a strong understanding of financial management either. The difference was that it bothered me enough to do something about it. I didn’t want to be the guy who owned the business but couldn’t understand the story the numbers were telling me. So I started learning. I asked questions. I studied my Profit & Loss statement. I paid attention to gross profit. I learned how to use the numbers to make better decisions.

That’s exactly what I helped this client do.

One of the first things we discovered was that a family member was handling the bookkeeping. There was nothing dishonest happening. This was not one of those stories. The problem was that the person had fallen into the role without the training or experience needed to handle bookkeeping for a company of that size and complexity. That happens all the time. Good person. Good intentions. Wrong seat, or at least not enough training and support for the seat they were in.

As we dug deeper, we started finding the problems. Payments weren’t always being applied correctly. Invoicing was inconsistent. Sometimes invoices were created when contracts were signed. Sometimes they were created when deposits were received. Sometimes when work was completed. Sometimes when payment was collected. There wasn’t a disciplined process.

Labor wasn’t being tracked to jobs. Subcontractor costs weren’t being job costed properly. Reconstruction projects weren’t being budgeted before work began. Project managers didn’t have profitability targets. The company was not lacking effort, and it was not lacking good people. What it lacked was financial visibility, bookkeeping discipline, and a consistent process.

That’s an important distinction.

A lot of owners hear something like this and immediately think, “Well, my people are trying hard.” I’m sure they are. That’s not the point. Effort is not the same thing as clarity. Good intentions are not the same thing as a good financial process. You can have great people working hard and still have a financial mess if the systems are weak.

One by one, we started fixing the issues. We improved the bookkeeping discipline. We established better invoicing procedures. We started creating budgets before reconstruction jobs began. We developed profitability targets. We began reviewing financial statements every month and using those financials to make decisions instead of just glancing at the bottom line after the quarter was over.

As time went on, things improved. Profitability improved. Cash flow improved. DSO improved. For anyone who doesn’t know, DSO stands for Days Sales Outstanding, and it’s basically a measure of how long it takes, on average, to collect money owed to the company. Project managers became more accountable. The owner became more confident. And the business started to become much easier to manage because he finally understood what was happening.

My favorite part of the story came later.

Eventually, this client recorded a screencast and sent it to me. He was reviewing his own financials. He was talking through the Profit & Loss statement, explaining trends, pointing out concerns, and identifying opportunities for improvement.

That was the win.

Not just that the bookkeeping was cleaner, although it was. Not just that profitability had improved, although it had. The real win was that he was no longer intimidated by his own financials. He could look at the numbers, understand what they were telling him, and use them to lead the business.

That’s what I want for restoration owners.

When I start doing P&L reviews with clients, I’ll often record a video and give them feedback. What I’m trying to do is teach them how to look at their financials through my eyes. I’ll walk through what I’m seeing, what concerns me, what questions I would ask, what looks strong, and where I think the owner needs to pay attention.

Then something pretty cool usually happens. After a couple of months, the client starts recording the video for me. Instead of me telling them everything I see, they start telling me what they see. Then I give them feedback on their assessment.

That’s when I know we’re making real progress.

My goal is not to turn restoration business owners into bookkeepers or accountants. I don’t want them reconciling bank statements, posting journal entries, or preparing tax returns. That is not the point.

But I do want owners to become financially literate.

There’s a big difference.

This is where a lot of owners get themselves into trouble. They think because they have a bookkeeper or an accountant, they don’t need to understand the numbers. I completely disagree. Your bookkeeper can enter transactions. Your accountant can prepare tax returns. But neither one of them is responsible for running your business.

You are.

If you don’t understand what your financials are telling you, you’re making decisions with a blindfold on.

Your financials should not just be accounting documents. They should be management tools. They should help you understand whether your jobs are profitable, whether cash flow is getting better or worse, whether your pricing is working, whether your project managers are performing, whether collections are under control, and whether you’re building a business that is becoming more valuable over time.

They can also help you create better compensation plans. If your financials are clean and your job costing is accurate, you can start thinking about performance-based compensation in a much smarter way. You can align team members with company goals, reward strong performance, and improve profitability at the same time. But you can’t do that well if you don’t trust the numbers.

The goal is not perfect financial statements.

The goal is not to become a CPA.

The goal is to become a better business owner.

If you’re reading this and you feel a little uncomfortable because this sounds like you, good. Do something with that. Don’t beat yourself up over it, but don’t ignore it either. You don’t need to learn everything at once. You don’t need to become an expert overnight. But you do need to start.

Here’s a simple Financial Reality Check.

Within the next few days, pull your most recent Cash P&L, Accrual P&L, and Accounts Receivable Aging Report. Your monthly financial statements should be ready to review by the 10th of the month, so if they aren’t, that’s a separate issue worth paying attention to.

Set aside 30 uninterrupted minutes and review those reports. As you do, write down three things you learned, three things you don’t fully understand, and two action items you’re going to take based on what your numbers are telling you.

If you want to go one step further, record a short screencast using something like ScreenPal and talk through what you’re seeing. That’s one of the best ways to learn. Don’t worry about sounding polished. Just explain what you think the numbers are saying, where you’re confused, and what questions you have.

The sooner you understand the story your numbers are telling you, the sooner you can use that information to improve profitability, strengthen cash flow, reduce chaos, and build a business that is worth more someday when you decide it’s time to move on. And if there’s a future generation coming behind you, then this work matters even more, because you’ll be much prouder of what you leave behind.

Discussion Questions

On a scale of 1 to 10, how confident are you that your financial statements are accurate?

What part of your financial process creates the most uncertainty today: invoicing, job costing, payroll, accounts receivable, bookkeeping, or something else?

If we sat down together and reviewed your Profit & Loss statement line by line, where would you feel least confident?

Action Assignment: Financial Reality Check

Within the next few days, pull your most recent Cash P&L, Accrual P&L, and Accounts Receivable Aging Report. Set aside 30 uninterrupted minutes to review them.

As you review the reports, answer these questions:

What are three things you learned?

What are three things you don’t fully understand?

What are two action items you’ll implement this month based on what your numbers are telling you?

Email your answers to me and let me know if there’s anything you’re stuck on. Even better, use ScreenPal or another screen recording tool and record a short video walking me through your financials the way I’ve been doing for you.