The following two categories need to be comprehended in order to understand your business:
(1) Operations and (2) Financial.
Companies do a much better job of understanding the operations side of their businesses than they do its financial side. This is partly due to financial fundamentals not being logically defined. Since the financial fundamentals are not clearly defined, they cannot be effectively articulated to business decision-makers.
(1) Operations “umbrella”
Operations include sales, customers, production, competition, markets, personnel, etc.
All of these fit under the “operations umbrella”.
Generally, businesses do a very good job of comprehending their operations. This is understandable because the operations are the business. They are the reasons founders and successors created and grow their companies. It is what excites and drives them.
Additionally, the P&L and operating reports are usually logical and intuitive. On the other hand, non-P&L financial concepts are poorly defined and therefore, not logical and intuitive.
It needs to be realized that operations and the P&L are not the entire “business story”. In addition to operations, the financial story needs to be grasped to round out or complete the full…
