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Tag: financial reporting

The Value of Understanding Your Numbers Through Reporting

by lauramills
The Value of Understanding Your Numbers Through Reporting

The benefits of having regular access to high-quality financial management reporting is far-reaching. Good reports reveal the efficiency (or otherwise) of the constituent parts of the business. They enable you to deal with potential threats and take advantage of opportunities to grow your business. The compound effect of making regular, quick and high-quality decisions based on a strong set of data and reports cannot be overestimated. 

Most businesses have some level of reporting in place but in most cases existing procedures are insufficient to allow for rapid growth.  

The Importance of Reporting is Twofold 

  1. To have retrospective visibility over past performance (that is, to analyse performance data and use it as a tool to course correct for the future). 
  1. To have visibility into the future (knowing what is likely to happen around the corner) 

What are Management Reports 

Management reports are tools for the management team to make decisions from.  Having your bookkeeper run a monthly P&L and Balance Sheet is fine, however to run a business efficiently you need to understand those reports and dig deeper to really see what’s going on.   

Base Level Reporting 

At the very least you need to have regular access to three key financial statements. They are: 

  1. The Balance Sheet 
  1. The Cash Flow Statement 
  1. The Profit and Loss  

4 Steps to Take Your Reporting to the Next Level   

Step one:  build a reporting framework around your products to determine what is profitable and what is not. If there are non-profitable products (or those that deliver little profitability), should you consider dumping them or only include them in bundles with other products? 

Step two: Build a fully flexible 3-way financial model (P&L, Cash Flow and Balance Sheet) for the next 3 years. Play around with the assumptions, i.e what other products can we put into the offering to customers? 

Step three: Build a 3-year plan based on your findings from Step one and two. 

Step four: Monthly reviews against the plan – what worked, what didn’t work and the whys around both. 

Need Help? 

Most SME’s don’t have the internal experience to action these four steps, nor does the owner have the time.  That’s where a part-time CFO comes in. At The CFO Centre, we don’t just focus on the business numbers – profit and loss, balance sheet, ratio’s, forecasts, but also the less visible “numbers” – what you want from your business – your financial goal for the business, the number of days a month you’d like to work, the number of holidays you want to take, the value you want for the business when you sell, the number of years you want the business to continue (legacy), the number of years until your retirement.     

Both sets of numbers play an important part in your overall success.   

The CFO Centre will provide you with a highly experienced senior CFO with ‘big business experience’ for a fraction of the cost of a full-time CFO. 

With their support and expertise at your fingertips, you will achieve better results, faster. It means you’ll have more confidence and clarity when it comes to decision-making. After all, you’ll have access to expert help and advice whenever you need it.  

Understanding Your Numbers Through Ratios

What are the 4 Financial Reporting Ratios?

by lauramills
What are the 4 Financial Reporting Ratios?

Understanding your numbers

To interpret and understand the numbers contained in your financial statements, you can use financial ratios. The numbers for ratios are taken from the Profit and Loss Account and the Balance Sheet, but not the Cash Flow Statement. 

They measure performance in percentage terms rather than raw numbers. This means you can compare your company’s performance with other businesses in your industry, with your previous results and with your projections. They can help you to answer questions such as – are your operating expenses too high, is the business carrying excess debt or inventory/stock, and are your customers paying according to terms? Banks and other lenders will want to see your ratios to see how your business performs in comparison with other businesses they’re lending to and with the standards they’ve set for lending. 

The four categories of ratios

  1. Liquidity ratios (which reveal your company’s ability to meet its financial obligations including debt, payroll, taxes, payments to vendors/suppliers)
  2. Profitability ratios (which help you evaluate your company’s ability to generate profits)
  3. Leverage ratios (which shows you how – and how extensively—your business is using debt)
  4. Efficiency ratios (which reveal how efficiently your company is managing certain key balance sheet assets and liabilities).

Which financial ratios should you track?

Some ratios will be more applicable to certain industries and businesses than others. If you provide a service rather than sell products, then ratios like return on assets and inventory turnover are unlikely to be relevant to your company whereas the receivables turnover is critical to your business operations. It’s best to choose the five most relevant ratios to your business and track those as part of your monthly management operating plan. It’s crucial to look at your ratios on a monthly basis so that you can spot trends as they develop

Get your numbers in track with The CFO Centre

Informed and insightful decision making can only be made if the magic finance numbers are accurate and informative. Reporting should thus be tailored and customised for the type of organisation (large, medium, and small enterprises). This is where a CFO can truly add immense value. A ‘one size fits all’ approach just does not work in today’s challenging, diverse and financially demanding business environment. 

 The CFO Centre can provide you with a highly experienced senior CFO with ‘big business experience’ for a fraction of the cost of a full-time CFO.   

With their support and expertise at your fingertips, you will achieve better results, faster. It means you’ll have more confidence and clarity when it comes to decision-making. After all, you’ll have access to expert help and advice whenever you need it. 

If you’d like to speak with us about how we can help you better understand your numbers to accelerate your growth, please get in touch here.

3 Steps to Scaling Your Business Through Reporting

by lauramills
3 Steps to Scaling Your Business Through Reporting

A client recently said to me: “I want to grow our business and stop the cash burn – how do we do this? When is it the right time to invest and grow?”

What a tough question to answer. Each business is at a different stage.

We spent a day examining his business and determining what the growing pains were. He had started the business a few years ago and it grew from scratch.

It was generating a great turnover and growing but they never had any cash.

“Why?” he asked.

After reviewing the business financials it was quite clear that the internal systems were not in place. He could not possibly understand the profitability of the products they were selling due to these inadequate systems.

Therefore they could not take the next step.

The first question I asked was: “Where do you want to take this business – what’s your goal? To build up the business and exit down the line, or are you looking to exit now? Or is this business a keeper if we can generate a great RoI?”

The response was: “We don’t know the numbers or where this business could get too as we have no clarity on the numbers”.

Something I see very commonly here in the SME businesses I work with – no clarity around the financials.

Next Steps

Step one for this particular client was to build a reporting framework around their products to determine what was profitable and what as not. If there were non profitable products (or those that deliver little profitability), should we dump them or only include them bundles in the online offering?

Step two: Build a fully flexible 3-way financial model (P&L, Cash Flow and Balance Sheet) for the next 3 years. Play around with the assumptions, i.e what other products can we put into the offering to customers?

Step three: Monthly reviews against the plan – what worked, what didn’t work and the whys around both.

The right time for a business to grow is when they can balance new customer demand with their internal systems and processes. Moreover, in the instance of this client, increasing recurring revenue streams. Growing faster generally costs more per customer as they need to engage more expensive channels within the business model.

Scalability is about continuing to engage customers with new offerings, and to engage new customers with your offering to the market.

To scale a business one must consider how the business model will affect the bottom line when you expand operations. If you have low capital expenditure and can grow your business with the same revenue / expense % it is much easier to deliver greater numbers in the long term and provide greater options to your customers.

It is early days working with this client but the potential is endless.