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Timely Financial Reporting

Guest post by: Joyce Smith

Article Overview: Timely financial information and interpretation of results can help companies determine who are their most profitable customers and which customers continuously make payments late. This can give a company a warning about an imminent cashflow crisis and allow the company to put credit or collections policies in place so the customers make payments sooner. Compare it to having your teeth cleaned every six months or waiting a year or so before going to the dentist. It’s a lot harder to correct problems once time has gone by and many problems get worse with time. Preventative maintenance allows issues to be addressed in a timely manner and a plan established to turn things around.

Timely Financial Reporting

When business owners first receive their financial reports, they will naturally look at the bottom line. Profitability is a crucial part of a business, but without expert advice and timely information, an owner could be missing vital information that could help their business. The passage of time usually diminishes the usefulness of that information to the point that after three or four months some of the information is of little value.

In other cases, business owners will extract periodic financial reports from their accounting programs often without any analysis or interpretation. When an owner receives information once a quarter or once a year, it could arrive too late to change business direction, implement changes in procedures to make the company more efficient or increase profitability. For example, a restaurant may have a decline in sales over a period of months but not make changes to staffing schedules. If this restaurant was receiving monthly reports, they would see that their 30% labor cost has increased significantly over the last few months by receiving a trend analysis of wage cost and would then adjust schedules according. If they wait until quarter end, or worse yet, year end, it would be too late to react and the results would affect the bottom-line.

There are other benefits to receiving timely financial information together with expert controllership advice. An accountant can suggest improvements to reporting to make the information more reliable or can interpret the information for the business owner to have a better understanding of the underlying numbers or trends. For example, in a construction company that delivers its product over the span of several months, if they are not recording a work-in-progress entry every month or quarter, their bottom-line will be wrong from month to month and the monthly/quarterly results will be misleading. Business decisions could be made based on these inaccurate monthly results and so waiting until year-end to calculate work-in-progress could be disastrous.

Another example where late financial information can cause serious issues is in the understanding of the liabilities owing by the company, especially where future cash flow requirements are not made clear enough in time for the business owner to bring cash in to make payments on time. Crisis cash flow problems can cause significant stress to the business owner, incur penalties and cause lack of creditability with the business banker. Understanding that you may owe a significant balance for HST or WCB and will need a significant amount of cash by the end of the month may not jump out at you unless you are receiving a regular bi-weekly cash flow requirement report instead of these numbers being buried in the balance sheet.

Timely financial information and interpretation of results can help companies determine who are their most profitable customers and which customers continuously make payments late. This can give a company a warning about an imminent cashflow crisis and allow the company to put credit or collections policies in place so the customers make payments sooner. Compare it to having your teeth cleaned every six months or waiting a year or so before going to the dentist. It’s a lot harder to correct problems once time has gone by and many problems get worse with time. Preventative maintenance allows issues to be addressed in a timely manner and a plan established to turn things around. In your business, you can leave things for many months but it may cause costs to rise substantially and force your business to have an extraction rather than just a simple cleaning.

Having timely, analytical financial information is an essential part of operating a business. It allows the owner to make necessary adjustments to increase performance and profitability and keeps them informed of where their business is at and what is required going forwardWhen business owners first receive their financial reports, they will naturally look at the bottom line. Profitability is a crucial part of a business, but without expert advice and timely information, an owner could be missing vital information that could help their business. The passage of time usually diminishes the usefulness of that information to the point that after three or four months some of the information is of little value.

In other cases, business owners will extract periodic financial reports from their accounting programs often without any analysis or interpretation. When an owner receives information once a quarter or once a year, it could arrive too late to change business direction, implement changes in procedures to make the company more efficient or increase profitability. For example, a restaurant may have a decline in sales over a period of months but not make changes to staffing schedules. If this restaurant was receiving monthly reports, they would see that their 30% labor cost has increased significantly over the last few months by receiving a trend analysis of wage cost and would then adjust schedules according. If they wait until quarter end, or worse yet, year end, it would be too late to react and the results would affect the bottom-line.

There are other benefits to receiving timely financial information together with expert controllership advice. An accountant can suggest improvements to reporting to make the information more reliable or can interpret the information for the business owner to have a better understanding of the underlying numbers or trends. For example, in a construction company that delivers its product over the span of several months, if they are not recording a work-in-progress entry every month or quarter, their bottom-line will be wrong from month to month and the monthly/quarterly results will be misleading. Business decisions could be made based on these inaccurate monthly results and so waiting until year-end to calculate work-in-progress could be disastrous.

Another example where late financial information can cause serious issues is in the understanding of the liabilities owing by the company, especially where future cash flow requirements are not made clear enough in time for the business owner to bring cash in to make payments on time. Crisis cash flow problems can cause significant stress to the business owner, incur penalties and cause lack of creditability with the business banker. Understanding that you may owe a significant balance for HST or WCB and will need a significant amount of cash by the end of the month may not jump out at you unless you are receiving a regular bi-weekly cash flow requirement report instead of these numbers being buried in the balance sheet.

Timely financial information and interpretation of results can help companies determine who are their most profitable customers and which customers continuously make payments late. This can give a company a warning about an imminent cashflow crisis and allow the company to put credit or collections policies in place so the customers make payments sooner. Compare it to having your teeth cleaned every six months or waiting a year or so before going to the dentist. It's a lot harder to correct problems once time has gone by and many problems get worse with time. Preventative maintenance allows issues to be addressed in a timely manner and a plan established to turn things around. In your business, you can leave things for many months but it may cause costs to rise substantially and force your business to have an extraction rather than just a simple cleaning.

Having timely, analytical financial information is an essential part of operating a business. It allows the owner to make necessary adjustments to increase performance and profitability and keeps them informed of where their business is at and what is required going forward.

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Article Tags: accountant, accounting, bookeeping, CFO, controllership, financial management, Simplyaccounting training



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