Romancing with the balance sheet


–What every printing set-up needs to know!

Financial literacy is important for any business. But, you do not need to be a chartered accountant to understand it. Here, financial expert Dr Anil Lamba shows the right way to read your balance sheet.

Finance is the core of all businesses and each organisation looks forward to a healthy balance sheet. How can this be achieved and what top management of each organisation should know?

Here, Dr Lamba, in conversation with Varsha Verma, talks about his experience of working with printing professionals, their financial knowledge and their need for financial literacy.

Varsha: Since you are a regular speaker at many printing conferences, share your experience about the financial knowledge of printers and how can they improve it?

Dr Lamba: So far as financial knowledge is concerned, printers are no different than the rest – there is much that they need to learn. Only, this should not sound as if I am singling out printers alone as ignorant. My observation is that this lack of understanding is endemic.

You may be aware that financial mismanagement is the single biggest cause of business failures the world over. And this happens because of a misguided perception that finance management is the sole prerogative of those in the finance and accounts department. It is so important for everybody to recognise and understand that the production function is the responsibility of those in the production department, selling is the responsibility of those in the sales department, but finance management is everybody’s responsibility. Not a single individual can say ‘it is not my job’. Every action of every individual has a financial implication.

Varsha: What is the perfect way to read one’s balance sheet?

Dr Lamba: To give a really short answer to a very long question…let me give you one mantra of good finance management.

Balance Sheets list out an organisation’s Liabilities and Assets. Liabilities represent Sources of money and Assets, its Utilisation. The Liabilities or Sources can be further broken up into Long Term Sources and Short Term Sources.

Similarly Assets can be classified as those representing Long Term Utilisation of Funds and those depicting Short Term Utilisation.

One should regularly monitor these and ensure that the Long Term Funds are used for Long Term Purposes and the Short Term Funds for Short Term Purposes. It is desirable to use some Long Term Funds for Short Term Purposes, but care should be taken to ensure that Short Term Funds are NEVER used for Long Term Purposes. If this happens, it could result in serious problems and even insolvency. Many once-successful corporations do not exist anymore, precisely because they have been guilty of acquiring Long Term Assets using Short Term Funds.

Varsha: How can printing set-ups change their balance sheets for the better?

Dr Lamba: My book, Romancing the Balance Sheet, explains systematically how to read and understand a Balance Sheet and what healthy organisations must do. First, each printing company should understand the weaknesses, if any, as revealed by their financial statements, and then go about setting them right. It will not happen overnight, and that is all the more reason why the process should commence as soon as possible.

Varsha: How can a non-finance person understand the financial numbers?

Dr Lamba: It is not difficult at all. To understand finance, it is not necessary that one is proficient in the subject of accounts. Just as one does not need to know how to make a car if one wishes to learn how to drive it, similarly it is not necessary to know how to make a Balance Sheet in order to learn how to read it. Business leaders can spend their entire lifetime not knowing how to make financial statements, but inability to read Balance Sheets can jeopardise the very existence of their business.

Varsha: Tell us something about the revised edition of your book Romancing the Balance Sheet?

Dr Lamba: The first edition of Romancing the Balance Sheet received an overwhelming response. To tell you the truth, I had never expected such an outpouring of positive reaction. Almost on a daily basis, I receive letters from people who have read and benefitted from the book. These include business owners, executives occupying very senior positions in national and multinational corporations, professionals, students, bankers, teachers, et al.

Since the first edition was around for over three years, I decided to make some revisions and modifications towards improving the content and its presentation and have recently launched the revised edition of Romancing the Balance Sheet, which has been released by Drawbridge Publications.

Varsha: Who are your target audience and how can this book help them?

Dr Lamba: Even though the cover of this book asserts that it is ‘for anyone who owns, runs or manages a business’, it can actually benefit a cross-section of readers. It is, of course, a ‘must read’ for business owners, senior executives and practising professionals. But will also benefit students, bankers and even housewives wishing to better understand how to manage their finances.

Dr Anil Lamba is a practising chartered accountant holding degrees in commerce and law and a doctorate in taxation. He is a founder and director of Lamcon School of Management, Pune, and director of Lamcon Finance and Management Services Pvt Ltd, a company providing financial services and consultancy. A trainer of international repute, he teaches extensively, and his clients comprise several hundred large and medium corporations across different countries of the world. He is the author of the bestselling book, Romancing the Balance Sheet and Figure Out The World of Figures, a series of training videos on finance for non-finance persons.

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