A beautiful set of numbers. Whilst this may excite your average accountant, it rarely does a lot for most people, let alone the time poor business owner. So what do we mean when we say it, and importantly, how can we cut through the volume of information that is now available to ensure our management reporting is timely and relevant.
The advent of the information age and big data brings with it an overwhelming volume of information. The challenge today is not what is available, but what is important to your business. There is no one-size-fits-all solution to management reporting, but there are still some common denominators that should be considered when putting together that ‘beautiful set of numbers’.
The importance of budgeting and benchmarking
We see budget formulation as a critical pillar of the annual finance cycle. A budget is often misunderstood; it should be seen as a process that maps the financial expectations of the business for a period of at least 12 months. Longer term forecasts are the financial spine of your strategic plan.
Reporting against the budget then maps your actual business performance through the use of budget variance analysis on at least a quarterly basis. This gives the business owner some surety that the business is heading in the desired direction and turns an otherwise retrospective report into a forward-looking document. Profit and loss against budget, and the underlying drivers that make it up, remain a cornerstone of all good management reporting and an important explanatory document for the business owner to map against. External benchmarks for an industry can also be useful tool for the business to report against.
Cash is still king
Cash flow remains the key area of concern for most business owners. But we can’t report cash based on what’s in the bank. We need to understand the cash flow cycles in our business to plan for pressure points and ensure the owner can draw their fair share of profit. We recommend an annual cash flow forecast to help plan financing over the upcoming year. For a business that is under regular cash flow pressure, we would also look to implement short term cash flow reporting to assist with managing creditors and payments and ensuring debtors are actively managed.
Understand what drives profit in your business
Measuring profit is one thing. But it is a retrospective exercise. Understanding what drives profit, and measuring those drivers, is equally important. These drivers are often easy to measure on a more regular basis and can drive owners and employees to strive for increased performance. Each business will have different profit drivers which could be factors such as order intake, average hourly rate, new customer visits, website hits, phone calls, customer engagement, return rates…the list is endless.
Don’t overcomplicate your reporting
We see a lot of comprehensive management reports. Reports that take significant time to compile and look wonderful. But in many instances, there’s either too much information, or irrelevant information. Most businesses can evaluate their performance and drive strategy with a simple dashboard of information. The key is tailoring it to
Build systems to produce results
As computer processing power continues to grow exponentially and artificial intelligence permeates accounting and management systems, it is becoming easier to compile management reports. We are also seeing previously standalone reporting systems starting to interface with each other resulting in an ability to automate the management reporting process. This can be completed in reporting packages as well as more flexible solutions such as Microsoft Power BI. Importantly, the business owner and accountant need to work together to build a meaningful report.
Build in accountability
Reports and information are wonderful tools to use to evaluate where a business has been and where it is going. Importantly, with responsibility in a business comes accountability. Successful businesses are still driven by people and they need to be accountable to the owners. A good management report not only motivates management to perform but holds management to account. A well-designed incentive program can work to supplement the reporting process.
Consider external assistance
The time poor business owner and the busy internal accountant will often need external guidance and an outside perspective to design a meaningful management report. Further, many businesses will benefit from an external party leading a regular meeting to evaluate the business results and provide feedback to the management team and business owner to help ensure their strategy is implemented internally.