Five Day Management ReportingYou've heard the cliche, that if you don't get your monthly reporting done quickly it's akin to driving a car by only looking through the windscreen every five minutes. In other words it's dangerous!Cisco Systems are able to achieve it in two days so I'm sure businesses with less complex structures and significantly smaller should be able to achieve it in five working days. The reports discussed are the internal management reports and not compliance reports for tax or audit purposes. Detailed below are the reasons you should implement five day monthly reporting, how to go about achieving it and the technology required, and some of the potential drawbacks. BenefitsIt provides fast feedback. Too often the results are not known and discussed until say three weeks after month end. If there are any issues that need to be addressed, then nearly a month has passed before you get the opportunity to address them.Psychologically it's easier to catch up a one month revenue shortfall, than a two month shortfall that is twice the size. The other side to this is also true. Celebrate your successes soon after they happen (while the memories of the hard work are still fresh in everyone's mind) because it's important to recognise this when it happens, not a month down the track when subsequent events may overshadow the success. Reporting is to a finance team what compliance work is to an accounting firm. Sometimes it's a necessary evil but it should lead to significant other work. In other words, it might not be enjoyable so get it done and then concentrate on doing the value added work such as analysing the reports for potential opportunities and ways to minimise risks. It's discussed in detail later, however, suffice to say, this concept spreads the workload across the month. Post/process transactions as they occur and not in one batch at the end of the month. Think about the situation you'd be in if the month's transactions were all posted in the one day and something happened to your computer system. Yesterday's backup would help (you do test your backups regularly don't you?) but it would still require entering the whole month's transactions again. By posting daily you are only risking one day's transactions. How to achieve five day reportingFirst and foremost, publish the cut-off dates. Based on volumes and the inevitable end of month rush, if it takes a couple of days to process, say the creditors' invoices, then make the cut-off at least a couple of days before month end.When setting up this type of reporting it pays to create a timeline, including all the interdependencies, to assist in establishing the cut-off times. Just keep in mind there will probably be a trade-off between usefulness and necessity. Publish the report availability dates for the whole year. The reason is two fold:
Procedures need to be written and conveyed to all relevant parties. For example, suppliers should address all invoices to the accounts payable team. The delivery address can be anywhere, but the invoice should go directly to the payables area. It can then be approved and processed without the potential for it to sit on a partner/director/manager desk for days. It is notorious within professional services firms for billing/invoices to be left until the last day of the month. This habit needs to be changed, with invoicing to occur on job completion. Thus helping to spread the workload over the course of the month. People responsible for approving transactions need to know the importance of their task and the fact that it must be completed on a timely basis. The approval must be as simple as possible and electronic if necessary. If approvers are frequent travellers and still need access to the approval process, then an option is to scan invoices and use electronic signatures and email to facilitate the approval process. Cut-offs don't have to be at the end of the month. A month is still a month if it runs from the 26th to the 25 of the next month. This works very well for invoicing and ensures the invoices are received by your clients before month end, and possibly into that month's payables cycle. Work with your suppliers to make sure you receive all you invoices regularly, and month end statements arrive promptly after month end. It's in their interests to do this and if you say it will assist with payments being made on time, then how can they refuse. Just make sure you do pay them on time. Ask for them to be faxed or emailed if necessary. This avoids postal delays which equates to a few days saving. Work with your bank to get your statements delivered on time. Collect them if it's convenient, use the internet or other electronic means if necessary. Reconciliation times can be significantly reduced if you are able to receive your statements electronically and avoid rekeying data. Some balance day journals are necessary but avoid processing accruals and prepayments to 'even out' the accounts. Accept the good and bad months, highlight the reasons why, develop action plans to address the issues and move on to fixing them. For good results remember to celebrate them. Nothing cuts into profits like having an exceptional month and holding some of the good news until next month. Those with knowledge of the good news can then use it as an excuse to back off in the next month, knowing they will still achieve the targets. TechnologyEmail is an easy way to disseminate information and get approvals. Hand written signatures are good but they can still be forged, so concerns about using some-one's email is valid, but in the long run just as safe and much easier. Groupware such as Lotus Notes has some great features to help automate these types of processes.Invoices can be scanned, stored on a server, then a link sent to the approver who then views the invoice online. How easy is that? You also need email to receive your invoices. Set up an email address such as accountspayable@yourfirm.com and advise your suppliers. This address then re-directs to the appropriate person in the payables team. Investigate the online banking possibilities with your bank. Encourage your suppliers to be paid electronically. This reduces your processing times because you don't have to write cheques. Just process the payment and fax/email a remittance advice. The other side of the coin is to get your clients to pay directly to your bank account. Print bank account details on your invoices. Maybe even offer a discount for electronic payment (as long as it's still within your payment terms). Receiving payment electronically can cut a few days off your collection times because the postal system is avoided. Just be sure to implement authorisation procedures that are consistent with cheque signing authorities. Most online banking applications offer multiple password security. Although it's more of a training issue, make sure the finance team is cross trained. Unexpected absences shouldn't delay the reporting process. Have written policies so there is consistency and a point of reference for help. If your current accounting application has a creditors module then use it, if it doesn't, then get one that does. It's preferable to have it integrated into the general ledger. Anything is better than the expandable file with a month's worth of invoices ready for processing. Each invoice or credit note should be entered during the month, reconciled to the statement and paid. It's that simple, end even easier if you general the cheques without having to write them, or better yet, create an electronic file to submit to your bank. It also means that the creditors can be ascertained at any point in time, which helps with cashflow planning. Processing creditors daily also means disbursements which are to be charged to clients are posted to the files quickly and the potential to forget to bill them is reduced. If you use MS Excel or another spreadsheet application to publish the reports then make sure you have templates set up with all of the budgets populated. It should just be a matter of rekeying the trial balance and using links or macros to create the reports. Many people feel that using Excel is an inefficient method, however, accounting packages are good at recording transactions and producing a standard set of accounts. They are not as good at producing customised management reports. Some have custom report writers and others can be combined with third party writers using ODBC links. Any of these methods should be used instead of producing a set of reports that don't meet the needs of the users. DrawbacksIt can lead to a mindset within the finance team that speed is valued more highly than accuracy. This is definitely not true, even for five day reporting. The reports should still be 100% accurate, based on the information available at the time.Is it worthwhile waiting for that final creditor's invoice that represents a fraction of a percent of the total expenses? No it's not, and whilst technically the accounts aren't accurate, it's not going to change any decisions being made based on the reports. Be careful not to end up with a 'disclaimer' paragraph that lists all the items not available at the time of publishing. Work to get the information on time, don't be satisfied with just noting it in the commentary month after month. ConclusionIf your finance team won't accept this, and say 'it can't be done', don't believe them. A quick search of best practice financial and management reporting will show that it is possible. Perhaps not all at once, and if it currently takes twenty days, move to fifteen in the first month then ten in the next and five in the next. Success depends on getting the inputs on time. Treat it like any other supply chain process and you will achieve it.So now you have the reports, make sure you use them. Schedule your monthly meetings for say two or three days after the reports are available. You'll want to be able to act on any issues as soon as possible. If you wish to reprint this article please Contact us. |
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