The Mantra for Better Monthly Financial ReportingJanuary 22, 2023
We’re here to pose a critical question to fellow finance and accounting professionals: How much do you care when it comes to monthly financial reporting? If you’re wondering how we define care, hang tight.
First, we want to suggest that far too many talented folks are settling for the status quo when it comes to the delivery of monthly financial reports. Call us overachievers, but we think too often monthly financial reporting entails a mad rush to generate three financial statements to provide to leadership only for them to glance at the revenue, EBITDA and cash balances. From there, the celebration or mourning commences.
There is more to the financials than numbers on a page. As the people equipped to turn data into a story, it is our job to communicate that narrative.
Let’s think about this further.
The P&L is only one-third of the information. Yes, your revenue and margins are important. And it’s true that valuations are based on revenue and income multiples, but the P&L is only the first chapter.
Are you making use of the balance sheet in your monthly reporting? Though the Balance Sheet is a “snapshot” on a single date, it can help set expectations on what may happen in the business in months to come.
And what about the Statement of Cash Flows? It’s the statement that might just be more important than the Income Statement. The Cash Flow is the API that connects the P&L and the Balance Sheet.
So pause. Are your monthly financial reports giving your leadership what they really need to run the business? If you’re hesitating, we have a way forward for you.
We are offering you a mantra for the monthly financial close process: “I CARE.” By “CARE,” we mean…. “Compare, Analyze, Research, Explain.” A commitment to this approach will put you at the top among accountants and financial analysts.
Inform. Before the end of the month, accountants should stay informed. Step away from the GL and Excel model long enough to listen to the conversations happening in your company.
Before COVID this was easier; we had offices and impromptu conversations, which allowed insight into what was happening across the organization. With the prevalence of remote work, staying informed requires intentionality. What was once impromptu must now be deliberate.
While we have budgets and forecasts to help us measure our company’s progress, we all know these predictions become stale quickly; however, the truly relevant expectations are based on what is happening NOW. Today’s events are what will shape what happens in the monthly financials, not what was budgeted last Fall.
Compare. Compare your results to prior month, quarter and year, but also compare to your expectations (budget, forecast or simply knowledge of the events during month). With forecasts and budgets that go stale, it’s best to train yourself to listen and ask questions during the month to develop a more “real-time” expectation of results.
Analyze. Take your comparison exercise and analyze the results. You have remained informed throughout the month, and now it’s time to ask whether it all makes sense.
Research. Analysis challenges our informed expectations, but research helps us determine the “why.” It’s important here to not just settle for the obvious answer. Stay curious. Keep asking yourself “why” until you have followed the trail and you have arrived at the final answer. This stage takes time and likely requires creative ad-hoc analysis.
Explain. Many find this to be the most difficult stage. It’s not what you communicate… it’s how. Remember the company leaders who often look at three numbers? Your challenge is to articulate the end results of your research in a concise manner. This step is the culmination of “I CARE” as the fruit of your diligence must be presented in a manner that is meaningful and digestible. Know your audience, know what matters and determine how to empower leadership to drive the company forward.
As you gear up for your next round of monthly financial reporting, think about your reporting process and how to exceed the status quo. Take your leadership beyond the three financial statements. Your efforts to stay informed and CARE will pay off.