That’s why we’re always surprised at how many businesses don’t produce consistent monthly reports. Periodic reporting checks the pulse of your business and gives you monthly updates on your key performance indicators.
What you report on depends on your business, but it might typically include:
It sounds onerous, and perhaps it’s the perceived administrative time that puts companies off the idea of producing monthly reports. But it only takes a shift in mindset to make it happen. And once you have reports rolling over monthly, it becomes a simple exercise. It can streamline your annual compliance requirements, save you a considerable amount of time trying to find historical information, and give you regular up-to-date results that lead to improved decision-making.
When businesses don’t have periodic reporting in place, we find it’s usually for one of three reasons. First, in cash positive businesses, they don’t report regularly because everything appears to be going along nicely. Second, in family-owned businesses, where there’s not much accountability required, so they produce reports when the mood strikes. Third, when the business started small, and the owner knew exactly what was going on. Now, it’s grown too large to keep it all in their head, and periodic reporting has never been established. But here’s how monthly reporting can be vital in all three situations.
No matter how well a business is performing, periodic reporting can deliver big benefits. Monthly reports that include KPI measures can reveal strengths and weaknesses, and can even show owners they can safely pull out more money and invest it in their personal growth. Plus, reporting can go a long way toward tidying up accounting and make the business more sale ready.
One client’s business was already profitable, but it took around 12 months to complete the annual accounts; it took a long time to pull together all the required information. We pushed hard over 18 months to put monthly reporting in place, and the difference has been immense. The reports have allowed us to spot opportunities for positive change. Working together with our client, we’ve been making operational changes that have successfully made the company more sustainable and the profits more consistent.
The owner plans to sell the business within the next few years. When that happens, they will get an excellent price, because the reporting really demonstrates how consistently profitable the business is. As a bonus, we were able to complete their annual accounts in a quarter of the time compared to prior years, because the numbers were at our fingertips.
Another client always tracked along well from a financial perspective but didn’t report regularly because the company was fully owned by one individual. Then the 2IC bought a portion of the business, and that person wanted to know more about the company’s performance, so shortly after the share sale process we put monthly reporting in place.
At first, the director was uncertain about the value that would be added. But after just the first quarter, the majority business owner told us they found the periodic reporting easy. Accurately tracking results led to predictable tax payments and cashflow could easily be allocated to meet those payments. The improved cashflow and confidence meant the company could pay out more frequent dividends. That was very welcome, and the owners are now considering selling another chunk of shares to a third party.
In addition, the business now has reduced compliance costs because the tax calculations are now accurate each month – we don’t have to spend as much time on tax calculations and adjustments for each provisional tax instalment. The accurate tax planning has led to better outcomes, more visibility and better decision-making for our client.
This type of business is the most worrying; the owner often still feels they have their finger on the pulse of the business, but if they’re wrong it can be critical. We have seen this first-hand. We encountered a company using a rudimentary spreadsheet to figure out how everything was going. The owner knew he had $1 million in sales in the pipeline, and his wages were 40% of total income, so he was confident the business must be in profit.
Unfortunately, this mental arithmetic wasn’t accurate. He had underestimated his wage costs by at least a third, he was locked into fixed-price contracts as prices rose, and his cashflow had dwindled to more of a cash trickle. Creditors weren’t happy; they pulled the plug and the business went into liquidation.
In this case, if the owner had been producing monthly reports on wages, costs and margins, he would have known much sooner that he was wading deeper into financial quicksand. Could it have saved the business? It’s hard to say, but it could certainly have prevented an enormous amount of stress and additional lost funds.
Monthly reporting can show you where your spending can be most effective. It also lets you compare your performance against your budget, to see your unders and overs, then adjust in the following month so you stay on track. That information isn’t useful if you don’t receive it until 12 months down the track.
The regular information can help you build the value of your business and show a prospective buyer why they should pay you top dollar. Even if your company is already thriving, regular reporting can give you the confidence to withdraw funds and use them for something that’s important to you, like supporting one of your children into a house or investing for your own retirement.
It’s easy, it will reduce any surprises, and it could boost your personal wealth and your business success – if you’re not already reporting monthly, start now.
