Every business looks at financial reports (right... right?!?!).

But too many don't know what else they should do.

Today, we'll tackle that "what else" and what you should be looking at:

• Daily
• Weekly
• Monthly
• Quarterly/Annually

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Improve your financial reporting with these cadences

As I’ve grown my fractional CFO business, I’ve had more and more calls with business owners.

To jump on a call with me, they’ve typically realized they have some sort of need, so I do my best to “mine” for that need.

I’ve been on enough calls now that I've start to see trends.

They’re stressed. They feel out of control. They don’t know what they don’t know.

As we walk through their “today” reality, I’ll ask: what financial reports are you currently looking at?

Often they’ll say their Financial Reports (Income Statement and Balance Sheet, if we’re lucky), but I ask what else. Often they’ll regularly look at their bank balances, but outside that, it’s rare to get a concrete answer.

If they do have more reports they review, they’re often ad hoc and not on a clear schedule.

So, if this is you: you’re not alone.

But, most don’t know what else they should be doing.

So today, we’re going to dig into the reports you need at each cadence: daily, weekly, monthly, and more.

Daily: Cash Movement Reporting

Daily reporting is where you often see the business owner’s worst instincts come out. And what is that instinct? Daily looking at the bank account balance.

Daily looking at your bank balance is bad for three reasons:

1. It’s incomplete data
2. It puts you in a reactive mindset
3. Daily trends aren’t predictive

It’s incomplete because it doesn’t account for outstanding liabilities. Those checks you’ve written or upcoming payments are nowhere to be seen in the bank balance.

Second, swings in balances can create a positive or negative reaction. And in this case, both are bad. Why? Because of number one: it’s incomplete data.

Third, daily trends are rarely predictive. The sample size is too small to tell a story.

So instead of looking at your bank balances, we want you to look at the following:

1. Deposits
2. Cash outflow

How you break these out will depend on the demands of your business. Sometimes you want an individual breakdown of all deposits, others you may only want the detail of deposits of overdue invoices.

For outflows, you want to make sure you capture physical checks and electronic payments.

What you’ll most likely end up with is:

Beginning Bank Balance + Deposits - Outflows = Ending Bank Balance

Some businesses have ample cash on hand and don’t require daily reports. In those cases, feel free to move this report to a weekly one. We have a weekly cash report, so incorporate the daily detail into the weekly report.

Weekly Reporting: Cash Flow & Operating Metrics

Weekly reporting is key to operating a business well because it’s quick enough to make adjustments, but still a big enough sample to see some trends.

I like to see two types of weekly reports:

1. Cash Flow Forecasting
2. Operating Reporting

Cash Flow Forecasting

In cash flow forecasting, we want to understand:

1. Prior & current bank balances (inflows & outflows by category)
2. Debt availability (LOC balance & available to draw)
3. Accounts Receivable Aging
4. Bills due in the next 2-3 weeks

The weekly cash report is where you can really drill in on cash trends. Without this report, cash surprises can sneak up on you and lead to a feeling of being out of control.

A good cash flow forecast report will help you feel like you’re controlling your money and making decisions proactively instead of reactively.

If you have a 13-week cash flow forecast, great. But this isn’t the 13-week cash flow forecast. This is more detailed than that on a shorter scale (2-3 weeks). For those doing their 13-week cash flow forecast weekly, it’s pretty easy to pull these details out and create their own report.

I like sending the 13-week cash flow forecast as a spreadsheet and sending the above variables in the body of the email. You want to be able to review this quickly on the go.

Operating Reporting

The type of operating reports you have will differ based on your type of business, but everyone should have these reports.

Keys when looking at these metrics:

1. Up-to-date numbers
2. Comparison to previous periods
3. Comparison to goal
4. Capacity/Utilization level (if applicable)

Each of these comparisons helps you see, in a snapshot, if something has fundamentally changed. That fundamental change helps you know what needs immediate action.

I can’t tell you specifically what to track, because that will differ based on the type of business you have. Below are some examples of what different types of businesses might track.

 

Monthly Reporting: The Financial Package

The two biggest two mistakes I see with monthly reporting:

1. The business owner doesn’t look at the reports
2. The reports are not tailored to your business

I’m hoping, since you read this newsletter, that you’re regularly looking at your reports. Looking at your financial reports is important and puts you ahead of large portion of business owners. If you just committed an hour per month to review them, you’d be an expert in no time.

But looking at a flawed or incomplete report is almost as bad as not looking at all.

When I build financial reporting packages, I want to make sure I have three things:

1. The key metrics we’ve decided to track
2. The high-level financial results
3. An ability to drill down to details

To accomplish this, we prepare three types of reports:

1. KPI Dashboard
2. Summary Financial Statements
3. Detail Reports

The KPI Dashboard is going to be a snapshot of your most important metrics. This will often include:

1. Financial (Revenue, Expense, Profit, Cash, etc)
2. Operational
3. Employee
4. Sales & Marketing

With Summary Financial Statements, the key is to only track the biggest levers on the three statements: Income Statement, Balance Sheet, & Statement of Cash Flows. Below is an example of the metrics you’d want to review.

 

With both the KPIs and Summary Financials, we want to display the data in a way that tells a story. This often requires visualization of the trends to help highlight the key points.

Between the KPI and Summary Financials, we want no more than two full Letter size pages.

This assures the key players have time to review it at a high level and be able to easily pick out the trends and most important things.

Below that you have the Detail Reports. These will include the full Financial Statements, as well as other reports you find necessary. Make sure you pick metrics in each of the above categories so things don’t fly under the radar.

I view the annual planning as the operating system of the business and these reports should tie to that annual plan in a way that helps you know if you’re on track with your goals.

Unfortunately, most businesses have monthly reporting that doesn’t fulfill that goal. Often, it’s become it’s overwhelming and trying to measure too many things.

That’s where Quarterly & Annual Reporting help.

Quarterly & Annual Reporting

With Quarterly & Annual Reporting, we’re trying to deliver the right number at the right time, in the right dose.

The right number at the right time, but buried in a hundred-page report isn’t going to accomplish the same thing the right number will when presented in a simple package.

So the key is establish a reporting schedule to assure you look at all the things you need in the business, but only look at them a few times a year, to assure each time you’re reviewing reports you’re able to focus on that report.

Each of these periods will still have many of the same details as the Monthly Reporting, but you’ll add more specialized reporting. This specialized reporting is often something that needs to be reviewed, but you’d previously done ad hoc.

Now, by adding it to a regular cadence, you are assuring it gets reviewed on a horizon that delivers the most information and that it doesn’t get overlooked.

Examples of Specialized Reporting:

1. Customer Acquisition & Retention Tracking
2. Sales & Marketing Effectiveness
3. Debt Load & Loan Maturity Review
4. Staff Performance Reviews/Planned Raises
5. Pricing Strategy & Effectiveness Review
6. Tax Planning
7. Capital Expenditure Review & Plan
8. Employee Productivity, Satisfaction, & Retention

This is definitely not all inclusive, as the type reporting you do depends on your specific business.

If you have questions based on your situation, feel free to reach out and I’ll help where I can.

We want to review these reports on a multi-year view to best understand trends and how to plan for the future.

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With the right reporting cadence, you can completely transform your business.

Commit some time to reviewing what you currently do and where you want to go. Then setup the systems to make that possible. This can take time, but it’s worth the effort.

If you have questions, feel free to reply here and I’d be glad to address them in future newsletters.