What do you say about your business?
Beyond the Elevator Speech

By Mary McVicker

Many of us, happily, aren't in a position of having to worry about having to make the perfect 40-second presentation of our business when we get on an elevator. That said, however, there are times when you're called on to speak about your business. This happens most frequently with potential creditors or major customers, but the need arises other times as well.

What do you say?

Do you talk about the physical operations or the financial side? Bankers, creditors and other interested persons tend to focus on one or the other, or both. But there's more. Missing from this summary are the intangibles.

The physical operations
For most entrepreneurs, operations is the easiest segment to talk about. The product is what brought them into starting their own business. The product is tangible and often quantifiable. Producing and marketing the product is the daily life of the business. The business generates data, such as the amount of production, the number of employees, the business facilities, the types of physical products.

The financial stuff
Many owners find it harder to speak as knowledgably - and in as much detail - about the financial side. You know the finances in detail, of course, but you may not know the details of the accounting behind the figures. Nor do you need to know that - it's not your job as manager or owner or entrepreneur.
Financial statements are the language of business, though, and you do need be able to address basic questions about them. There's more to this than conversation - being able to discuss the financial statements in some detail shows that you know the infrastructure of your business. The key is knowing what information matters on those statements, and what doesn't.

Many of the terms are self-evident. Let's look at some of the terms that aren't self-evident, and of the concepts that sometimes get thrown about in financial discussion.

» Net worth. Although this term is commonly heard (at least in some circles), it doesn't really tell much about the business. Simply put, net worth is assets minus liabilities. The result is a number that doesn't say anything - unless it's a negative number.

A negative net worth - having more liabilities than assets - should raise sharp questions and red flags about the solvency and the financial health of the business.

Underlying the question of net worth, then, is the question: "Is your business solvent?"

» Working capital, another term that gets bandied about, looks at the question of liquidity. Liquidity and solvency are closely connected. Working capital is taking a different slant on the question of the viability of a business.

Technically, working capital is the total of your business' current assets, which include cash, short term investments, accounts receivable, and inventories. These assets are considered liquid, because they can be converted readily to cash. However, the amount of cash you have to work with obviously is limited by the demands on that cash. What might look like a large amount of cash suddenly diminishes when you realize that most of it is already spoken for by a stack of bills. For that reason, many people focus on net working capital, which is current assets minus current liabilities.

Here's the confusing part. When people refer to working capital, chances are they really mean net working capital - considering both current assets and current liabilities. You should assume that's what's meant.

» Accounts receivable are only as good as their collectability. If your accounts receivable are current, if you're monitoring them closely and taking action to collect overdue accounts, then the amount of accounts receivable on your balance sheet should be close to representing the actual worth of those accounts.

If you offset your Accounts Receivable by an Allowance for Uncollectible on your balance sheet, resulting in a net figure for Accounts Receivable, that figure is probably more in line with the reality of your Accounts Receivable.

» Retained earnings is probably the most confusing account on the financial statements. It's also rather meaningless much of the time. "Retained earnings" sounds regrettably like a savings account - earnings that have been retained. Logical.

But Retained Earnings has nothing to do with real money. It's an accounting convention, one that makes the balance sheet balance and connects the income statement to the balance sheet. How this works is mildly interesting to those of an accounting frame of mind, but for most of us, all we need to know is that there is no actual $$$ involved. Because Retained Earnings is the accumulation of profits and losses over the life of the business, it's historical. For the first few years of the business, the account has some meaning since it shows the recent history. Past five years, though, it's simply an accumulation of income statement results.

However when retained earnings is in negative figures it's showing there have been losses in the past. That should raise a red flag signaling the need for more questions starting with: how much loss and when?

Be aware that the account may be (or should be) called "Accumulated Deficit" rather than "Retained Earnings." Or, if the total for "Retained Earnings" is in parentheses, this is an accumulated deficit.

The missing information
Much significant information about your business is missing from your financial statements. Some is financial: financial statements don't give complete information, particularly in matters of depreciation expense (a non-cash "expense") and payments of loan principal (only the interest payment is shown). A more complete financial picture is shown by including a well-constructed cash-flow statement with the financial statements.
But what about the other information, that isn't financially based? These assets aren't recognized on financial statements, yet they say much about the well-being of your business. If you're presenting information about your business - either written or verbal, you should highlight those assets as well.

• Reputation
• Business history
• Location
• Loyal customers
• Employees
• Marketing program
• Community involvement
• Business culture

Oh yes, the elevator speech
What do you say when someone asks what you do, or what your business does?
Remember how your mother told you not to talk about yourself so much? This may be one of those moments. Yes, you need to talk about your business, but the best descriptions include the ripple effect: what your business does for customers, neighborhoods, environment, property.

"Our business is tree care - keeping trees healthy, not just looking good - and having a positive impact on the environment."

Note that you're telling your new elevator friend not only about your service, but what that service does for everyone's well-being. Now that's a promotional elevator speech.

Mary McVicker is a freelance writer living in Oak Park, Illinois.