Do you have the right financial information to manage your business?

Many businesses fall into one of three traps with their own financial reporting – an absence of up-to-date financial information, the wrong financial information or too much financial information. Each causes different problems, so striking the right balance is important.

An absence of up to date financial information 

You probably talk to your accountant every year to find out what your profits are and what the business tax liability will be. Throughout the year you monitor your bank balance and track your debtors and creditors to give you a rough idea of the profits. If you're faced with a decision, such as investing in new machinery or premises then you talk to your accountant to see whether you can afford it. 

Although this may be fine for the smallest businesses, the lack of up-to-date information means they are reactive to their environment. Ensuring your prices are correct, taking on employees, forecasting, closely monitoring overheads and fundamental changes to your business model will be an exercise in guesswork. This may result in a state of business indecision and a lack of growth. 

The wrong financial information 

You probably have a profit and loss account and balance sheet every month. Perhaps you compare this to last year or even a budget you prepared at the beginning of the year. The frequency of your financial information provides comfort and an understanding of your financial position. However, your business isn't achieving the results you want. You want to grow the business, but you fall short of your budgeted expectations. 

Understanding the key drivers behind the business results is what lets these businesses down. Every sector has industry standard Key Performance Indicators (KPIs), which need to be considered in tandem with your financial results. Some of these KPIs will be "lead measures" which provide insight for results in future months. Business owners need to drive these KPIs to achieve the results they want. 

You can read more about KPIs here. 

Too much financial information 

You have pages of financial information with lots of supporting documents. All of the information about your sales pipeline, analysis of overheads, profit percentages and conversion ratios are there, but it takes time every month to read and interpret the information you have. Although you can spot areas for improvement, it takes time to achieve change and you wait for your month end financial pack to see how the business has performed. 

Business information overload is a common problem and not easily recognised. All of the reports you receive have been useful to fix an issue in the past so you continue to receive them every month. This leads to a distracting amount of information to digest. The reality is that some financial measures are more important than others and determining the frequency with which you receive this information is equally important.” 

Having a "dashboard" of live KPIs and financial headlines helps business owners to focus on what is important and take immediate action where necessary, limiting the extent of emerging issues before they grow. Similarly, providing clear parameters to your finance team on the monthly information you need will limit the volume of supporting documentation you receive each month i.e. I only need an explanation of overhead variances above 10%. This will allow business owners to focus on what is important for the future of their company.

Whether you're drowning in financial information or lacking the right numbers to make business decisions, our Outsourced Accountancy Services can help you to get the financial reporting your need.