I cannot tell you how often I hear the following answer to the following question: \u201cWhat management information do you receive on a monthly basis?\u201d. \u201cWell I guess a P&L and a Balance Sheet when I ask for it, but when I query something in the figures it is still two or three weeks later before I hear anything; if I hear anything at all.\u201d Sound familiar?\u00a0<\/p>\n
Part of the challenge is that business owners do not know what they can and should see every month. This might of course sound a little basic but maybe it would be good to start with a Why. Why should I receive regular, good quality information.\u00a0<\/p>\n
I once had a client say to me many years ago \u201cI only know if I have made a profit when the Accountant does the figures before they are filed.\u201d And this was quite a reasonably sized business. Of course there lies the answer. If something is going wrong, the only way you really know is because the bank balance is decreasing, and then it might be too late. And if you don\u2019t know what is good, you can\u2019t do more of the good, let alone correcting the Wrong.\u00a0<\/p>\n
So the reason it is important to have a good monthly management pack is so you can fully understand all the complexities of your operation, and understand and focus on the important areas that will be driven out of the numbers. This will enable the right decisions to be taken at the right time with the right information. You don\u2019t want to be doing the opposite, and I have known some pretty big organisations that have done just that.\u00a0<\/p>\n
So as a minimum what should you be seeing. All businesses are different. They have different value drivers, the parts of their operations that mean the most to them. It may be hours sold, number of leads, orders taken, gross margin, average price, sales by channel etc.\u00a0<\/p>\n
Your reporting pack will focus on what is important to you and your business, with explanations of variances, Key Performance Indicators, corrective actions and narratives. However they should all contain at least the following:\u00a0<\/p>\n
We don\u2019t always have the time to read everything in detail. We want to have a quick glance to see if all is OK, and then catch up on the detail later. Key relevant comments at the start of the report mean a lot.\u00a0<\/p>\n
And I think one of the key points about a good report is that you shouldn\u2019t have to ask why something doesn\u2019t look right; you should be told, either as a highlighted comment, in an executive summary or in a commentary. Proactive rather than reactive.\u00a0<\/p>\n
Ever heard the saying \u201cTurnover for vanity, profit for sanity\u201d. Most organisations are generally in it for the money, with of course the exception of public bodies, social enterprises and charities. However all organisations should know where their income is coming from and where the cash is going out. The profit and loss account is key area for reporting income and costs, and when presented in the right way it will be apparent if all is well or something does not look right.\u00a0<\/p>\n
There should be supplemental reports that are organisation relevant, highlighting gross margins, revenue streams, costs and outgoings etc. Again these are organisation specific, depending upon need but should highlight discrepancies.\u00a0<\/p>\n
The Balance Sheet can often appear complex however there are a number of key areas within a Balance Sheet report that should be relevant to most organisations, and these generally focus on current assets, the areas where cash is tied up.<\/p>\n
Debtors \u2013 Understanding who owes you what, what they have paid and haven\u2019t paid is really important and this would be highlighted within a debtors aged debt report. Are there signs that customers are struggling to pay, should you restrict supplies, who pays well, who doesn\u2019t, are there growing potential bad debts that could affect profitability and cashflow. Having an effective credit control process can significantly improve a cash position.\u00a0<\/p>\n
Stock \u2013 The biggest challenge around stock is valuation, is it there and being out of date or obsolete. The larger the stock number the more focus there should be in this area as the greater impact of stock checks and obsolescence will have on organisation\u2019s bottom line performance.\u00a0<\/p>\n
I regularly say that there are only 3 reasons businesses go bust; cash, cash and cash.\u00a0<\/p>\n
Having a regular, forward looking cashflow statement is a pre-requisite unless of course you are luckily enough to be awash with cash and that should lead to other questions. Planning for large cash outgoing\u2019s such as VAT or Corporation tax is important to understand where ongoing cash generation will come from to fund this.\u00a0<\/p>\n
There should be a suite of relevant KPI\u2019s so sometimes complex information can be presented in a way that is simple to understand, particularly when set against organisational goals.\u00a0<\/p>\n
And last but not least there will be sub-reports that provide relevant information important to see on a monthly basis. It may be a Work In Progress report for project or service companies, fundraising projections for charities, digital analytics for ecommerce business as an example. The important point is to focus on what is relevant to performance, rather than information for information\u2019s sake.\u00a0<\/p>\n
This might seem quite a task to put all this together, however there are some very quick ways to extract data and complete reports; it is just interpretation, analysis and commentary that is required.\u00a0<\/p>\n
I am also quite often asked \u201cWhen should I see a monthly report?\u201d I would generally say that within 5 days of month end. Some organisations take a little longer, and it is worth it if the output is relevant.\u00a0<\/p>\n
So if you do not have a good monthly pack then please get help in putting one together; it will make a tremendous difference to your outlook.\u00a0<\/p>\n
If you would like specific help in putting together a meaningful and insightful monthly reporting pack please contact us below:\u00a0<\/p>\n