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Overview of the challenges in internal financial reporting
With almost all of my clients, I was surprised by the sparse monthly internal financial reporting. In most cases, sales figures were provided early, days or weeks later followed by a business analysis that was more or less meaningful. Different, fragmentary reports were sometimes not coordinated with each other, which made unnecessary inquiries necessary. Companies with tight liquidity had additional information on liquidity. In most cases, that is all there is to it.
You deserve a better basis of figures for your business decisions
As an entrepreneur, you often make decisions with gaps in your knowledge and with some uncertainty, which is actually unacceptable. Yet your figures could be significantly better at a reasonable cost in terms of time and money. As your entrepreneurial numbers coach, I will show you how you and your team can make the most of this opportunity.
Starting point of financial reporting: sales, gross profits and contribution margins
A focused view of the market with a sales forecast (in this case in terms of quotes issued), order backlog and turnover is the starting point for all your business decisions. You should keep an eye on this development on a monthly basis. This is where internal financial reporting begins.
These values are followed by the gross profit and contribution margins of your divisions or business areas. If these values are not yet available, we will discuss as a team how we can arrive at these values. In the majority of cases, this is achieved with reasonable effort.
What are your unique strengths?
The next section is the business analysis, adapted to the company and its special features with comparative values such as budget and previous period. Special features can range from sales segments to particularly relevant costs or cost blocks. As an entrepreneur, you are free to choose how you want to present this. It is important for you as an entrepreneur to be able to recognize the development of value creation over time. As your financial coach, I will work with you to prepare your figures so that they tell you the right story. Figures that do not show what was done right and what was done wrong are useless.
You should keep in mind monthly what assets are required to generate your company’s performance. This also includes the financing of these assets. Taken together, we are talking about your balance sheet. It surprises me time and again that many companies only deal with their balance sheet when preparing the annual financial statements. Often, opportunities for active balance sheet management with regard to the equity ratio and other key figures can only be utilized to a limited extent at that point.
The development of your company’s most important fuel—your liquidity—cannot be fully understood from the income statement or management accounts alone. Only when combined with the balance sheet does it show you, over time, the level and consumption through cash flow. To calculate a meaningful cash flow, the balance sheet and income statement are generally sufficient.
Detailed presentation of important assets
If your company requires assets prone to value-adjustments to provide its output, a detailed breakdown should be included in the monthly reporting. For a food manufacturer, this could be the inventory, where special attention must be paid to the part with a best-before date. For other industries, it could be the age structure of the accounts receivable or the composition of the fixed assets. I will help you find out where the particular risks lie in your assets and present them transparently.
If provisions play an important role in your company, you should have them shown on a monthly basis. Provisions offer well-argued scope for flexibility in accounting policy.
If you finance your company through loans and working capital lines, a monthly bank statement, coordinated with the balance sheet, is a must. You should prepare the bank statement primarily for yourself. The fact that it can also be used for reporting to lenders is a pleasant side effect.
These evaluations supplement you with the monthly statistics of your most valuable resource, the personnel, according to a perspective that is important for your company, often according to cost centers or areas.
You can supplement these evaluations with other company-specific, important evaluations. It is important that you, as an entrepreneur, can get a good picture of the past month and the current year in 20 to 30 minutes. Value creation and liquidity should be your benchmarks.
Proactive action through continuous internal financial reporting
With the help of regular, timely, and comprehensive monthly internal financial reporting, you will increasingly be able to act rather than react to fragmented ad-hoc reports. I’ve made it a habit to include the necessary future actions directly in these reports.
It takes little effort to prepare and update these figures and values month by month for a report. The monthly continuity allows you to identify negative developments more quickly and improves the overall quality of the data, particularly with a view toward the annual financial statements.
If you also prepare them as time series in tables, you will gain a valuable tool over the years to assess the development of your company and the quality of your decisions over time
In industries with long-term requirements, such as mechanical and plant engineering, presenting a consistently strong long-term development can be beneficial during acquisition, based on my own experience.
The forecast for the current year and the planning for the coming years can seamlessly align with the monthly actual figures at any required level of detail, whether it be general ledger accounts or balance sheet and income statement items. This significantly improves the quality of the planning. Don’t be afraid of the projected balance sheet; as your financial coach, I will gladly show you how effectively it can be created.
Combined with a multi-year plan at the same level of detail, you will have the best foundation for a numbers-based company valuation using methods such as Discounted Cash Flow, Net Asset Value, EBIT multiple, and more.
Upon your request, I will be happy to send you a detailed report on monthly internal financial reporting.
