2014

Reporting regularly and controlling costs is essential to successfully running a business, especially if the business runs on tight margins.

Costs and profit drivers need to be understood; controlling costs has an immediate positive effect on a business’s bottom line and it’s often easier to save a dollar than to generate additional sales.

There are four key aspects to reporting that will assist with management decisions:

  • Weekly reporting
  • Monthly reporting
  • Forecasted cash flow
  • Annual reporting

Weekly reporting

Analysis reports for sales/margins/wages typically come from point of sales (POS) reports. These should be used by managers to track outcomes for a given period e.g. to drive sales, push higher margins on certain products or manage hours worked by staff. Managers should be using this information to analyse and measure against forecasted results.

A manager should be able to determine what level of daily sales is required to break-even and then map the week out accordingly. Sales reports should assist managers in determining whether staff are upselling, how much each staff member is ‘selling’ per hour and how much income is generated per head of staff.  This is all valuable information to drive sales and to train staff in how and what products to promote.

Margins need to be closely monitored and wage costs need to be factored in to this.
Information about wages taken from POS reports can assist with determining when busy and quiet periods occur. To get the maximum bang for buck, adjust employee starting times accordingly based on when sales typically start kicking off and send staff home early (if possible) during quiet periods.

Monthly reporting

Essentially a profit and loss statement (P&L) shows how much profit the business has made. The balance sheet demonstrates how that profit is being spent and the health of the business’s financial position.

A monthly P&L is a useful tool to monitor margins against benchmarks. Ideally, over time a business will gain some economies of scale and therefore the percentage of wages and overheads should be decreasing as sales increase. Comparing month-on-month P&L results with previous years will assist with determining seasonality fluctuations and be useful for forecasting.

The balance sheet shows how much cash would be available if the business stopped operating. It includes income tax liabilities, GST, debt repayment obligations, capital expenditure, owner’s drawings and working capital. Working capital is important because it tells you whether the company has sufficient cash in order to pay its short term debts and operating expenses.

Forecasted cash flow

Remember that ‘cash is king’. A business should always have enough of a cash buffer to pay creditors and taxes. If a slow period is looming, ensure sufficient cash reserves are available to cover this downturn.

A forecasted cash flow provides an idea of when money is expected to come in and at what level, and compares this with money going out. If cash is tight, forecast the outgoing cash flow for at least the next 10 weeks and prioritise creditors and defer payment as much as possible. Also, there is the trade-off of shareholders wanting to take money out of the business verses ensuring there is enough cash to pay debts. A forecasted cash flow will give owners a better handle on when they can take money out. 

Annual reporting

The annual report should be used to track year-on-year performance and to assist with forecasting. At this point there should be no surprises as the report should confirm the results from the monthly management accounts, which in turn were confirmed from the weekly analysis reports. If the results are drastically different to what was expected, it’s time to revisit and drill into the detail.

Further enquiries, please contact:

Andrew Harris
Grant Thornton New Zealand Partner, Privately Held Business
T +64 (0)9 308 2986
E andrew.harris@nz.gt.com

Fono Sosene
Grant Thornton New Zealand Manager, Privately Held Business
T +64 (0)9 308 2596
E Fono.Sosene@nz.gt.com