We come across business owners and managers who diligently study their financial reports soon after they are available. Equally, we also come across business owners who never view financial reports. Never. And then there are business owners in between these extremes.
The quality and relevance of financial reporting is likely to influence a manager’s attitude to financial matters. Having a good understanding of finance is important and can greatly improve decision making. We believe all business owners should expect to get AT LEAST the following from their financial reports:
If your business strategy involves revenue growth, ensure your financials tell you how much you are growing. If your strategy involves cost reduction, ensure you can quickly see whether you are cutting costs. Those who prepare the financial statements should be familiar with your strategy so they can ensure the strategic message is captured in all reports.
The dashboard in your car summarises important data even though there are thousands of other data points you could consider. Your financial statements should do the same; provide a few key metrics which describe business performance. You can then drill into areas that need attention.
Each business is different so it’s reasonable to expect that the ‘traditional’ Profit & Loss and Balance Sheet will not provide everything you need to make business decisions. Previously, it was hard to generate customised reports because data was difficult to access and manipulate. But that is seldom the case now with modern software and better business processes.
Sometimes businesses become obsessed with generating and viewing monthly statements soon after the month-end. But are these really required so soon? It may be better to get a comprehensive set of quarterly reports so you can reflect on trends more easily. There’s no ‘rule’ but you should get what you need when you need it.
Financial statements can be very inward looking therefore only capture data on what your business has done or will do. But what about your competitors? Maybe, for example, your profits didn’t increase in the last quarter, but your market share increased. Your financial reports should at least trigger discussion on these ‘external’ influences.
This one is simple. Financial reports should indicate what the future looks like AND how the future will be influenced by changes you might make. Many forecasts (or ‘budgets’) capture expenses but don’t focus enough on sales forecasts.
All too often, we see businesses which seem healthy but will face challenges due to a shortage of cash. Your financial reports should highlight any associated risks.
In conclusion, equip yourself to make the best business decisions possible. Insist on financial reports that reflect your needs as a business owner. We’re eager to help you accomplish your goals through financial reporting which empowers management.
Why not start with a quick review to evaluate how your financials are helping you make better business decisions?
We help ambitous small business owners grow their personal wealth and achieve their ideal work/life balance.
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Palmers Business Support was founded to help ambitous small business owners grow their personal wealth and achieve their ideal work/life balance. With accountancy as the central pillar of our offering, we take the view that timely accounts and efficient compliance is the bare minimum our cients should expect.