Interim financial reports are only for big businesses. Right or wrong?

While it seems that it’s bigger businesses that generally invest in interim financial reports, the reality is they are valuable for businesses of all sizes. Financial reports are the gateway between what’s just been happening in your business and what you should be doing right now, so the more current the report the better you can understand how to keep your business on course to your destination.

Interim financial reports are the navigational aids that assist owners and/or managers with making strategic business decisions. This is because:

    1. They report on key metrics which can be actively influenced and can be specific to your market or industry
    2. They showcase trends in your business
    3. They provide insight into why the business is on/off track
    4. They provide a snapshot of the overall business health
    5. They can drill the reporting down into the detail on product categories or operational centres or actuals against budget etc
    6. They provide alignment across the business on how success is measured
    7. They promote accountability to budgets, goals and decisions made.

I only have a small business, do we really need interim financial reports?
It is understandable that interim reporting might seem a burden that smaller businesses can do without. However, you need accurate information regularly to continue making appropriate decisions for your business. Although your business may be alive and well now, it’s sustainability is not guaranteed. Staying in business involves constant monitoring and adjustments, which is where regular reporting helps out.

You are also less likely to miss out on a business opportunity or run into problems if you understand your current business position. You can only really appreciate your current business position if you have up to date information.

OK, so what reports should I be looking at?
There are five ‘business critical’ reports all businesses should be regularly reviewing. These are the:

    1. 1: Profit and Loss/Income Statement
      This report talks about the hard work you and your team have put in (your sales) and the money you spent while you were at it (your expenses). It sums up your business activity into whether you made money or lost money.

      2: Balance Sheet
      A balance sheet is about how the business activity is funded and looks at the relationship between the assets of the business, the money it owes and the investments owners have made into it.

      3: Cash Flow Statement/Cash Summary
      This gives perspective to the first two reports. It tells you what money people have actually paid to you and what money is actually at your disposal to pay your bills and fund new business activity.

      4: Creditors/Aged Payables
      A creditors report tells you what suppliers need to be paid and what is due or overdue for payment.

      5: Debtors/Aged Receivables
      This shows you what money the business has already earnt from customers but not been paid for yet. It highlights what needs to be followed up to ensure bad debt doesn’t occur.

You could set up a dashboard that represents the key information from these reports visually, this might lead to easier understanding and higher ‘information intake’ rather than ‘information overload’. When data is provided in a format that is easily absorbed and optimises the key information for the day to day operations of the business, owners and/or managers have more clarity on what needs addressing, what the priorities are and what action needs to be taken. There are many reporting apps that integrate with accounting systems that provide dashboards. When set up correctly these can provide regular snapshots with little intervention. The apps we are using with clients currently include Fathom, Spotlight Reporting and Vend.

There are also many detailed or custom management reports that can be particularly helpful. You may be able to upgrade your reporting to get more powerful data for very little outlay or find that the outlay is more than offset by the benefits to the business. So if you’ve got the ‘business critical’ reports under control, consider adding some of these to your reporting routine:

    1. 1: Key Performance Indicators (KPI’s)
      You can use KPI’s to track your business performance against set targets.

      2: Product Performance
      This highlights your top performing products in terms of quantity sold or profit made etc. If you have a lot of inventory, regular review of this report can guide you on things like what stock levels you need to maintain, or if you should consider discontinuing a product line.

      3: Profit and Loss by site or business division
      This is a Profit and Loss report which has been broken further down so you can see the profit or loss in specific sections of your business, not just as an overall whole. As a result you can see things like whether a second store is profitable in it’s own right or whether it is only viable as part of the overall business.

      4: Direct Costs as % of Sales
      This is an extension to the Profit and Loss report which shows each of your direct costs as a percentage of the overall sales for the corresponding period. These percentages can be more easily compared to other entities for benchmarking performance or your own reports for previous periods.

      5: Consolidated Profit and Loss and/or Balance Sheets
      Many businesses structures now have assets and trading separated between entities. By providing one report that shows the combined items it is easier for business owners to understand overall profitability and financial position.

      6: Budget to Actuals
      This shows you how your income and expenditure stacks up against your budget, identifying where there is a variance.

      7: Cashflow Forecast
      Forecasts can show you what cash you need and when, to be able to meet your business objectives. They can also be used to demonstrate the financial impact on the business of various scenarios, such as employing a new staff member or buying a new vehicle. A forecast can give you warning of possible cash shortages ahead of time, so you have time to obtain extra finance or reduce your debtors etc to soften the impact.

      8: Financial Ratios
      Financial ratios can help provide an instant snapshot of your businesses health and sustainability.

      9: Balanced Scorecards
      The balanced scorecard system is about strategic planning and management. You could use it to measure and monitor progress towards the strategic goals of your business.

Whatever reports you use, you want to make sure they are driving strategic decision making in your business. There is no point in them being produced if you don’t read them or don’t use them to qualify your business decision making. You need to think too about what time you (and/or the persons the reports are to be prepared for) have available to review the reports and act to address any needs identified.

Have some questions about what reports will help you best drive your business or how you can supplement your existing reports? We would be happy to discuss this with you – call us on 03 5339 3200 or contact us here.

Thanks for reading.

By Genna Kidd

The information contained on this website has been provided as general advice only.  The contents have been prepared without taking account of your personal objectives, financial situation or needs.  You should, before you make any decision regarding any information, strategies or products mentioned on this website, consult your own financial advisor to consider whether that is appropriate having regard to your own objectives, financial situation and needs.

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