Get a Grip on the Numbers that Count

If you're like most small-to-medium business owners, you probably have a pretty good "seat of the pants" feel for your business.

Research has shown that as SMEs move through stages of business development, the financial management needs become more specialised. As a result, financial management problems tend to be most prevalent in start-up and high-growth businesses.

Inadequate financial management results in unsatisfactory cash flows, margins and debtor management, poor working capital, and difficulties in raising or maintaining acceptable finance.

Management reports can be thought of as the doors to your business. Each door has a sign, allowing you to instantly decide whether to go inside for a deeper look, or go to another door. The "deeper look" of course is where the money is - cost savings, revenue improvements, and strategic shifts.

Measures that matter
An effective management reporting system allows you to see the measures that matter and choose priorities for action. This reduces risk, and boosts productivity, cash flow and the bottom line.

A prompt and regular business reporting framework allows for orderly business growth, and provides stability and security. It can also provide the rocket fuel for above-average business performance. The features of a good system are:

• Attention to what matters: Deviations from budget are highlighted as they happen, without you remembering to go and check.
• Business facts shown in an easy one-page graphical format are quickly absorbed
• A structured reporting framework develops a "working on your business" mind-set
• Getting the complete picture not only reveals opportunities for cost reduction and revenue improvement, but lets you see which adjustments would have the biggest impact
• Answer key questions (even when you forget to ask), for example:
  • We made a profit, but where's the cash gone?
  • Where's our profit coming from, and what is the sensitivity to changes in price or volume?
  • Why are our expenses so high/low?
  • What's the reason for the change (up or down) in gross profit?
  • What's the value of the business?
  • Do we have enough cash for our plans for the next month/quarter/year?
  • How can we afford.. expansion, capital expenditure, retirement..
  • Can I afford to withdraw cash now or in the future?
  • How do we compare with others in our industry?
  • How can we free up working capital, avoid borrowing, pay off some debt?
  • What are the trends (where are we heading)?
  • How should we handle a significant turn-down?
• Regular profit measurement enables employee productivity to be objectively measured, managed and incentivised
• Regular statements are essential for quantifying cash flow requirements for GST, income tax, payroll tax
• Proactively manage relationships with the bank and other stakeholders by identifying important issues before they happen, producing reports on time, and demonstrating that you're following a predictable, credible plan.
• By regularly reviewing and revising KPIs, the management of key business goals is disciplined and objective (let intuition and gut-feel guide your judgement after you've got the facts)
• Reports delivering what you need to know, not just what traditional format accounts which divulge little information
• Staying on top during the year simplifies things at year-end for your tax accountant, saving time and money.

Traditional services
The traditional profit and loss and balance sheet (usually monthly) is a first step, providing a basic picture, and allowing BAS and payroll tax returns etc to be prepared.

However to manage a business, more detailed information is needed, and it must be presented in a way that is easy to read, cut through the clutter and draw attention to what's important.

The "dashboard" method of reporting ignores the trivial, and lets a manager cut to the chase by focusing on only the things that matter. In principle, this is nothing new, especially for larger companies, but advances in technology and software allow this method of reporting to be implemented quickly and cheaply for all businesses.

See results at-a-glance
The concise one-page business dashboard report lets you instantly see your business's vital signs.

There's no need to understand finance, and no need to wade through a maze of numbers to find out what you need to know - simple graphs and diagrams tell the story.

KPI-monitoring is a crucial part of financial control, and becomes extremely powerful when all staff buy-in to the goals. A dashboard report shows all relevant key performance measures, all presented in an easy diagrammatic format.

Not just financial measures, but physical and qualitative performance benchmarks let you understand and control your business in detail, with a minimum of effort.

The numbers are easily reviewed and updated in response to changing priorities, and "flexed" or changed on a "what if.." basis so that the effect of a change in plans, or trading conditions can be seen.

A manager looking for business improvements can instantly see which areas of the business need attention.

Benchmarking, by comparing your business to others in your industry, or to a goal or standard, is another useful way to pin-point areas for improvement.

The aim is to highlight only the important information, and present it in a way that is immediate and actionable.

Getting started
The starting point is to ensure that your bookkeeping system is accurate and up-to-date. This ensures that your periodic BAS obligations are maintained, and cuts down time spent by your tax accountant at year-end.

The chart of accounts must be carefully set up, to match the business processes and the management reports, and to ensure that your Key Performance Indicators are being accurately measured.

Next Steps
An efficient and accurate computerised accounting system enables regular performance reports to be prepared with comparisons to budget. A review of these reports allows strategic decisions to be taken in an informed way. KPIs are used to ensure things stay on track in between your formal reviews, which are typically monthly or quarterley.

Rolling budgets allow short-term cash flows to be predicted and controlled. Forecasts also ensure that the business processes, the cash flows, and your overall profit targets are reported in a linked way - so that a change in any one factor will be accurately reflected in the results.

Once a budget framework is developed, "what-if?" scenarios can easily be used to test strategic decisions, and assess risks, before decisions are taken.

Need help?
We help small to medium businesses get fast, simple and meaningful accounting reports which enables managers to get greater control and certainty for less effort.

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