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The amount of information available to business leaders today is greater than it has ever been at any point in history. The number of analytical tools and techniques available to analyze the information is just as vast. Yet, the majority of companies are not using this to their advantage. We believe that companies that invest the time, capital, and resources to ensure the right information is collected, reported, analyzed, and monitored stand to reap enormous benefits. Below are the most important reports we recommend every business has.
KPI DASHBOARD
Every organization has 3 to 7 key performance indicators (KPIs) that are important to their business. Once identified, these KPIs should be measured, reported, and tracked on a daily or weekly basis and made available to all management in a one-page dashboard that can be accessed onsite or remotely. Having an accurate, timely, and meaningful KPI dashboard is imperative to making the right decision, monitoring progress, and holding your management and employees accountable. KPIs will vary based on business model, industry, and strategic initiatives. Therefore, we recommend companies select KPIs carefully. Ideally, KPIs should comprise both leading and lagging indicators. Leading indicators provide valuable information about the likely future outcome. Lagging indicators tell you about what has already happened and are foreshadowed by positive leading indicators.
ACCOUNTS RECEIVABLE AGING
If your business sells to customers on credit, then we recommend generating and reviewing an accounts receivable aging report regularly (weekly or monthly). This report indicates what customers owe you money and when that money is due. It is a critical report to managing your company’s cash conversion cycle because it allows you to identify and follow-up with customers that always pay late or have large late balances and to project how much cash you expect to receive over the coming weeks. Having a process in place so that customers are billed on time and that invoices are entered into the accounting system regularly is critical to maintaining an accurate and up-to-date accounts receivable aging report.
ACCOUNTS PAYABLE AGING
The accounts payable aging report tells you which vendors your company owes money to, how much is owed, and when that payment is due. This report helps determine which vendors to pay and how to avoid late fees or take advantage of early payment discount opportunities. It is also useful for identifying which vendors offer the best payment terms and thus managing working capital. Similar to the accounts receivable aging, a process must be in place to enter vendor invoices into the accounting system on a regular basis.
FINANCIAL STATEMENTS
The three primary financial statements are the income statement, balance sheet, and cash flow statement. All three are equally important and should be generated monthly. For the reports to be useful, the financial statements need to be produced in a timely manner. A well-run accounting department should be able to close the books and report the financial statements by the 15th of the following month. Reviewing the financial statements monthly is useful for identifying big-picture trends in sales, profitability, and cash position, and assessing how the business is performing relative to budget (see below). Time and care should be taken to generate financial statements that are detailed enough so that the business’s various divisions, products and services, and sales channel performance can be measured separately.
SALES REPORT
A good sales report shows historical sales information (gross sales, discounts and allowances, returns, orders, and average order value) by customer, division, channel, and product. A great sales report also shows profitability and offers information on the expected sales pipeline. Tracking sales (and profitability) at this level helps identify where your company is growing or shrinking (and where your company is making or losing money). This report can also be useful for managing the sales and marketing department and helping the purchasing department improve the amount of and cost of inventory being ordered. Most companies should be publishing a sales report monthly, and at the very least, quarterly.
ANNUAL BUDGET
Having a budget allows a company to set goals and priorities, estimate expenditures and anticipate revenue, and measure results. As a minimum, the annual budget should forecast the income statement, balance sheet, and cash flow statement for the upcoming fiscal year and mirror the format of the monthly financial statements (to allow for easy comparison to actual results). Well-thought-out budgets will also feature supporting detail on sales and expenses and the timing of cash flows of significant balance sheet items. They will also include input from key management and stakeholders to generate buy-in. Every company has its philosophy on how aggressive the budget should be. At Cronkhite Capital, we prefer realistic budgets that are achievable if things go reasonably well. Importantly, the only thing we know about budgets for sure is that the minute they are completed, they are wrong. In our experience, nothing ever goes as planned. While the budget is an important management tool, as circumstances change, so should the company.
13-WEEK CASH FORECASTS
Lastly, there is the 13-week cash forecast. Not all companies require a 13-week cash forecast. Those with highly seasonable businesses, large or lumpy liabilities, or unusually tight cash constraints may consider implementing a 13-week cash forecast to manage cash and liquidity. A properly designed cash forecast includes cash inflow and outflow details at the customer and vendor level and is updated and monitored weekly.
SUMMARY
The amount of information that today’s business leaders have available at their fingertips to make decisions is virtually unlimited. The potential rewards for those that invest the time, capital, and resources to ensure the right information is measured and reported are enormous. Doing so allows business owners to make informed business decisions, to identify and act on opportunities and threats before the competition does, to design and measure strategic plans, and to manage and incentivize management and employees.
The partner at Cronkhite Capital has over 10+ years of experience helping small to medium-sized businesses across industries design, implement, and monitor financial reporting. For a free consultation, please reach out directly to Ryan Hammon. Email - rhammon@cronkhitecapital.com Phone - (415) 847-8103.
