Finance teams within small and medium-sized companies often say that financial reports prepared for board meetings, like profit & loss and trading reviews, get little or no reaction from attendees. In some cases, this could be due to the financial data not being understood fully or correctly. However, it could also be around providing insightful analysis to make the data meaningful.
When businesses begin to grow, business owners may find the financial reports delivered by the finance team become less useful than they were during the start-up period. This could be due to the reporting being too historical, targeted at an area that is no longer relevant or a priority or the systems generating the data no longer being fit for purpose. If the report generated has also increased in page quantity, for example 15 pages or more, readers won’t digest the contents properly and at best treat the document as a skim read, or as a worst case scenario, ignore the financials completely. Clearly, reports will receive more positive and favorable feedback if the content is shorter, graphical, future focused and more relevant.
So how can finance teams go about making positive changes that will ensure their reports are relevant and read?
Finance teams, can ask their colleagues and/or external advisors and coaches for advice and guidance around how to enhance board reports to make them more engaging and user-friendly. A good recommendation for this would be to, ask the user what they want to see (data quantity, comparison to budgets, prior periods, data formats, etc) and then develop a management pack ahead of the meeting and circulate it out across the board. This way each member can get acquainted with the data analysis and ensure it’s totally understandable. Another good addition to this pack would be to attach a one-pager summary in an easy to digest layout, summarising the key financial data, areas of importance & development and where action is required.
Key Performance Indicators (KPIs) should be established at sufficient detail to be meaningful and kept under review, as the business starts to grow, to help make the finance teams monthly reporting more effective and help draw attention to areas of the company that are performing well or poorly. To help paint a realistic picture of where the company is heading, analysis of margins, sales & cashflow should be produced. This can help to answer questions like – are the sales figures trending up or down or in line with expectations? How will this trend affect future growth?
If your company runs on a project basis, financial reporting can be more complex. Projects may last a short amount of time e.g. 3 months, whereas other projects may last up to a year or longer. It’s therefore important for the finance team to account for financial performance on a project by project basis. Management will want to know whether or not each project is profitable or not and whether there are any risks to future profitability. To ensure that this is calculated properly, the finance team will need to communicate effectively with the operations team to make sure they know what stage the project has reached, expected completion time & date and are they on budget.
If there is large number of projects underway at the same time, it would be wise for the finance team to understand and document the point at which each project is expected to turn cash positive. This would help reassure the management board that the cash position of the company is secure.
To make sure the financial data is relevant future focused, forecast modelling should be adopted to help provide a view of how key decisions could affect the performance of the business over time. As an example, the board may wish to discover what would happen if the company’s prices were increased or decreased by 5% or if a new senior manager was recruited to head up and drive the sales team.
Demonstrating the cash and profit impact of differing scenarios and important company changes should keep the management board engaged. With this type of cash modelling & reporting process, financial teams will be able to make their data more meaningful and essential to board meetings and overall running of the business.
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