Dark cockpit detail of an Airbus A330 - 200 commercial airliner while crossing the Atlantic at 35000 feet. This is an actual inflight situation photographed from the co-pilot's position, with colorful blue on black screens giving information about engine parameters, navigation, flight parameters and communication. Flood lights on the instrument panels reveal switches and gauges. XL

All businesses need to be well loved from a financial point of view, or they won’t succeed. They might have a strong growth curve and good profits, perhaps many hundreds of thousands a year, but without a good finance team when they hit a problem – and all businesses face challenges – the problem can turn into a crisis.

It is surprising how many businesses, even successful ones, tolerate financial management reporting systems that could be much better. Lots of medium-sized SMEs – those with a turnover that exceeds £5m – have financial management systems that can be improved, yet owners and managers may accept them as they are because the businesses are profitable.

Part of the problem is that decision-makers often do not know what really good financial management reporting looks like, or understand the commercial benefits it can bring to the business. Our experience shows there is a clear correlation ¬– as management reporting improves, so profits will improve. Better financial information allows better decision making, which generates better results.

The commercial benefits of getting your management reporting right

Improved decision-making

Management accounts can help business owners/leaders identify trends much more quickly and hence take decisions at the right time. This will often give them a significant competitive advantage. Of course, the ability to respond more quickly than your competitors is even more important in situations of dramatic change and uncertainty. We saw this during the fallout from the 2008 financial crisis and will no doubt see it again as we navigate through the repercussions of the Brexit vote from the EU. And remember, if your competitors are doing it and you are not, it is they who have the advantage.

Once you’ve seen the impact that good quality management accounts can make, it’s disheartening to see businesses that are still expending management time and making decisions based on out-of-date financial information that falls below the standard required to run a profitable and successful business. Reporting regularly (daily, monthly or quarterly) ensures that management can identify trends, are better informed and take action accordingly.

The forecasting element of management accounts – and the discipline it demands ¬– creates an additional benefit. It will focus your attention so that any variation from the expected can be easily identified.

In short, businesses that only see their accounts as retrospective reporting aren’t looking where they’re going. Forecasting should be a priority for all businesses trying to make the right decisions in any environment.

Communicating accurately to key stakeholders

We have seen businesses, such as those in the construction sector, face real funding threats when, for example, the reports produced haven’t accounted for timing issues surrounding costs on large development projects. By applying project accounting we have helped those businesses allay unnecessary fears from their banks by evidencing key information such as the profit-per-contract figures.

It’s not just the construction sector though – all businesses need to be on top of their margins, inventories and staff costs, and all relevant KPIs.  They need to be on top of their business and developing the right reporting pack is a key part of that.

Foundations for growth

We love working with growing businesses but resources aren’t the only thing that need to be scaled up to ensure that your success continues as you grow.

It’s also important to look at the more complex reporting requirements your organisation may need in the next stage of its growth. Our clients that have grown the most smoothly and successfully are those that have reporting that is fit-for-purpose.

Tailored for your needs

Every business has its own challenges and objectives. Solutions must be tailored to the specific needs of the business, the owner and the management. This includes ensuring that technology meets your needs but it’s also about looking at the processes and skills within the finance team.

The Fundamentals

So, what does good financial reporting look like?

• Identifying the KPIs that are critical to your business and
• regular reporting on actual performance versus forecasts.

There’s no one-size-fits-all solution.  It all comes down to understanding your business.

The big question

The question every business owner should be asking is, does our current management reporting give us the financial data we need, when we need it, and can we trust in that information to  help us run our business profitably and successfully?

If not, please talk to us.

For a review of your reporting, contact Larry Phillips lphillips@goodmanjones.com


The information in this article was correct at the date it was first published.

However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.

If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.

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