Most businesses sell more than one product or service, but equally most business owners have…
Information Has to Be Timely to Be Useful
We live in a world with expectations of instant responses to text messages and emails, with phone calls returned in a short time period.
What we want, we want immediately. Instant gratification reigns supreme. But there are some things we do need to wait for.
Financial information falls into two main categories. Firstly, the information that needs to be kept up-to-date on a daily basis (or at worst weekly). This requires that your bank and credit card accounts are updated. With the automation and artificial intelligence inbuilt in accounting systems like Xero, there’s no excuse for this not to be done on a daily basis. For most Small Businesses this can be done in less than 15 minutes a day.
With reconciled bank accounts, you have accurate information on what invoices are outstanding that you need to be chasing. Whilst chasing payments is no one’s idea of fun (unless you are an accounts receivable expert or debt collector), it is an important part of a business and a necessary evil to ensure that you maintain your cash flow coming into the bank.
Having your bills entered into your accounting system on a daily basis (or at worst weekly) means you can see at a glance how much money you owe when looking at your accounts payable report. This information is vital to help you decide what bills you will pay and when based on the money in your bank account or the money you know is coming in as you’ve been following up with your clients or customers to get your invoices paid.
The second category of financial information is the key numbers and reports that make up a monthly management report. Whilst some businesses may report on a quarterly basis, I know that monthly information puts the focus on the numbers in a timely manner and will yield far better results with regular review.
Working with my clients on monthly reporting, I have those clients who have their figures up-to-date within a few days after the end of the month. This means that within the first week of the month, we’ve prepared the management report and had a session to review the numbers and identify the good, the bad and the ugly within the figures.
The benefit of looking at the previous months’ figures so quickly is the ability to take corrective action or change direction when the numbers aren’t going the way you want them to.
For example, with one client, we identified that her wages costs had jumped up significantly. Armed with this knowledge, and an idea of what the wages costs needed to be brought down to, the business owner was able to go away and immediately look at the rostering and make changes to eliminate over-staffing.
If this same business owner only looked at the financial figures every quarter, it is possible that there could have been three months’ worth of high wages before the problem would have been identified, let alone corrected.
I work with other clients who have larger teams and more complex accounting requirements and despite systems and processes that have been implemented, time deadlines discussed and agreed, the time taken to complete the accounting data entry and reconciliations in recent months has stretched out from one week to three weeks.
The downside of having the previous months’ financial information three weeks into the next month is any issues with the numbers have just been continued for a further three weeks beyond the end of the previous month and changes required to be implemented to make improvements are unlikely to impact until the next month. Thus the cost of the ‘ugly’ numbers has gone out to two months, rather than being contained within the month and perhaps a week or so beyond.
Whilst instant gratification and immediate response times are expected in business, make sure that you have implemented timelines and deadlines for your financial reporting with these being completed as soon as is humanly possible after the end of each month.
The later they are prepared, the more damage will be done to your financial position in the event that you’ve taken your eye off the ball or foot off the pedal, and you’ve lost control of the business numbers.
“The opinions expressed by Smallville Contributors are their own, not those of www.smallville.com.au"
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