Financial Data Helps The Leadership Team!

• Data covers a lot more than annual financial accounts and tax return

• Identify the data needed:
  • Daily
  • Weekly
  • Monthly

• Predictive Accounting Reports
  • Budgets
  • Key Drivers
  • Cash Flow Forecast
  • Projected Balance Sheets

Identifies the Targeted Positions, but are also the KEY PERFORMANCE MONITORING TOOL to EVALUATE PERFORMANCE.

This should be the aim of any accounting system.  The data is not for the accountant or bookkeeper primarily but for the Managers and Leadership Team Members within the business.

Business activities obviously occur on a daily basis and I believe that is where the accounting system should commence – on a daily basis.

The Daily Information would relate to the requirements of the individual business but as an example could include:

• Sales
• Average sale
• Number of customers
• Weekly Performance Report

This concept is widely used in larger businesses but unfortunately many SMEs do not receive key data on a weekly basis.  What can be included is the Key Performance Indicators (KPIs) for that week together with the weekly profitability report which is a realistic estimate of the activities conducted for the week.

This report should be as close as possible to “real-time” which would enable managers to recollect what actually happened on a particular day to understand why the overall result was not what they envisaged or alternatively that an “accidental improvement” may have been a significant factor in a better than expected result to emerge.

A month is a long time and if a business that does not have a Weekly Performance and Profitability System in place some of these contributing factors may have been forgotten.

Monthly Financial Accounts

This is the financial summary for the month’s performance and should be able to be reconciled very closely with the Weekly Performance Reports.  This will enable Managers to have confidence in the Weekly Performance Reports so that they are able to make real-time decisions to improve the business performance as incidents occur.

A Comparison to Budget Report should be prepared on each business unit.

The Balance Sheet should be evaluated particularly relating to debtors, inventory, creditors and bank balance.

A Business Plan is a “wordy” document.  By contrast the series of documents comprising the Predictive Accounting Reports include numbers to show the “Financial Interpretation of the Business Plan”.

The Budgeting Process is very important for all types of organisations from small to major organisations and in every instance this process has the significant benefit of “Bringing The Business Plan to Life”.

Budgets not only give a forecast for the next year or three years or more on a monthly basis to convey a story of how the business is expected to perform but one of the major benefits is that it enables an analysis to be undertaken each month where the actual performance is compared with the expected performance.  The variances should be calculated and referred to the Management Team responsible for each individual business unit so that the reasons for the variances both good and bad can be determined.

At this time the full benefits of the budgeting process have not been achieved because management now needs to determine whether there should be changes in the work process, costs, selling price of products/services within a business unit as compared to the original Budget.  This can lead to a revised Budget estimate being prepared which can be reflected in a “ROLLING FORECAST” which is the terminology given to a Revised Budget having been prepared for an individual business activity.  In this way the original budget estimates are not scrapped but are there to highlight what the results were originally expected to be.

The Key Drivers are an area of vital importance for a business because this is where some major items are located and these normally need ongoing analysis each month.  For example, the estimate of debtors outstanding at the end of each month has been based on the estimate of what the “debtors’ days outstanding” will be at the end of each month.  This Key Performance Indicator should be clearly identified and the Key Performance Indicator needs to be calculated on a monthly basis to ensure that the Debtors’ Days Outstanding does not exceed what the original budget estimate was otherwise there will be cash flow issues for the business.

Each Key Driver subaccount should be analysed monthly to determine whether variations are occurring from the assumptions that were made in the original deliberations for the Predictive Accounting Report.

Towers Business Development can assist SMEs implement these key processes.  To find out more, contact us on 1800 232 088 or email peter@towersbusines.com.au, to arrange a complimentary initial consultation via Zoom.

If you would like to have a discussion with Peter Towers the Founder and Managing Director of Towers Business Development and a former Chief Financial Officer and Company Secretary of a Listed Public Company please do not hesitate to contact us - 1800 232 088 or email peter@towersbusiness.com.au and we will set up a complimentary Zoom meeting to discuss.

If you want more information please visit our website www.towersbusiness.com.au