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All businesses need to be well loved from a financial point of view, or they won\u2019t 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 \u2013 and all businesses face challenges \u2013 the problem can turn into a crisis.<\/p>\n
It is surprising how many businesses, even successful ones, tolerate financial management reporting systems that could be much better. Lots of medium-sized SMEs \u2013 those with a turnover that exceeds \u00a35m \u2013 have financial management systems that can be improved, yet owners and managers may accept them as they are because the businesses are profitable.<\/p>\n
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 \u00ac\u2013 as management reporting improves, so profits will improve. Better financial information allows better decision making, which generates better results.<\/p>\n
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.<\/p>\n
Once you\u2019ve seen the impact that good quality management accounts can make, it\u2019s disheartening to see businesses that are still expending management time and making decisions based on out-of-date financial information that falls below the standard required to run a profitable and successful business.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.<\/p>\n
The forecasting element of management accounts \u2013 and the discipline it demands \u00ac\u2013 creates an additional benefit. It will focus your attention so that any variation from the expected can be easily identified.<\/p>\n
In short, businesses that only see their accounts as retrospective reporting aren\u2019t looking where they\u2019re going. Forecasting should be a priority for all businesses trying to make the right decisions in any environment.<\/p>\n
We have seen businesses, such as those in the construction sector, face real funding threats when, for example, the reports produced haven\u2019t 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.<\/p>\n
It\u2019s not just the construction sector though \u2013 all businesses need to be on top of their margins, inventories and staff costs, and all relevant KPIs.\u00a0 They need to be on top of their business and developing the right reporting pack is a key part of that.<\/p>\n
We love working with growing businesses but resources aren\u2019t the only thing that need to be scaled up to ensure that your success continues as you grow.<\/p>\n
It\u2019s 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.<\/p>\n
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\u2019s also about looking at the processes and skills within the finance team.<\/p>\n
So, what does good financial reporting look like?<\/p>\n
\u2022\u00a0Identifying the KPIs that are critical to your business and
\n\u2022\u00a0regular reporting on actual performance versus forecasts.<\/p>\n
There\u2019s no one-size-fits-all solution.\u00a0 It all comes down to understanding your business.<\/p>\n
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\u00a0 help us run our business profitably and successfully?<\/p>\n