The Denver Business Journal had a great article in their November 23-29, 2007 edition that included a business quiz.  The article was written by Darrell Mullis and Michael Higgins, principals at Stratactics, a Boulder, CO management consulting firm.

Here is a portion of the quiz they posted.  Test yourself and your employees!

1.  Pre-payment to a marketing company to develop advertising for a product line will be recorded on what two financial statements immediately?

a.Income statement and cash flow statement; b. Balance sheet and income statement; c. Balance sheet and cash flow statement

2.  Advances from customers (deposits) are payments for future services, which means we can not yet recognize them as:

a. Cash flow; b. Assets; c.Liability; d. Revenue

3.  Which of the following statements explains the difference between profit and cash?

a. There is no difference.  They both mean we are making money.

b.  Cash tells us how much money is in our bank account and profit tells us how much revenue has exceeded costs during a specific period of time.

c.  Cash tells us how much money we made and profits tells us if the money we’ve made is liquid or not.

d.  Profits tell us how much money is in our bank account and cash tells us how much revenue has exceeded costs during a specific period of time.

Answers: 1-c, 2-d, 3-b

My guess is that if you gave these three questions to your ten most senior people, at least half of them would get one or more of the questions wrong.  The point of this exercise is to make your realize that educating your people on business fundamentals is your (the CEO or business owner) job, and that most people are painfully ignorant of the fundamentals of business.

Your business growth will be governed by the average level of knowledge in your company.  As Verne Harnish says, “the company that learns the fastest wins”.  Create a simple training plan, and get started today!