What are the most important month-end reports for the CFO and CEO and why is even monthly reporting now too slow?

imageThe first part of this was a question I saw in a local forum put by a business management accountant. It occurred to me that as professional business consultants, which internally in his company he is too, we answer this question frequently when designing reporting systems for our CFO and CEO clients.

It may sound ambiguous but I believe to find the answer we need both top down and bottom up perspectives.  Modern reporting trend of corporate high flyers to motivate performance, and people like software vendors may make this sound hackneyed, but I say the profit and loss and the balance sheet reports (PBSL) critical They are are the most important reports you they ever need in a business.

Having said that, here is my thoughts on what else is important and why. I will also go further to say monthly is now too slow with many companies demanding weekly or even daily reports to be able to respond to more rapid market cycles that changes are much faster.

We all know the most important reports are the ones the CEO and the executive team use to drive the business and manage the investment risks. Typically, in the equation Victory = Velocity, + “Variability, + Visibility are all the watch words a CEO needs. Reports therefore, must give the business the power to manage these elements well.

In other words business momentum, market dynamics and management transparency are the common ingredients we all need to be able manage well. And to do that and keep the rhythm going we need good information routinely delivered in each business process. More importantly we need to be able have get the answers to the questions we ask that the information brings up with an easy ability to do deeper analysis without setting up a task force commission.

As to content and who reports what, to track what’s gone on and manage what’s being planned the performance management and planning and reporting process that the CFO team provides is vital. It is a must as well that it be timely, consistent and very reliable with well integrated and easy to understand reports that everyone involved can access and see.

Taking a high level view on that content can be good. This may typically be a ratio summary or dashboard with key performance measurement (KPI) of activity critical to success. Once that is well established the collaborative of use KPI reporting is very effective. But it can take some time to mature as the behavior we see in the detail is not always intuitive at first in KPI summary. For example in one businesses a late delivery signal on a KPI may indicate serious issues that have immediate loss of business consequences with sales retention and profit then at serious risk. Where-as in other businesses while it may still be important it is less of a risk and can be managed. This may even differ from product to product  in the same business the underlying issues and impact to be addressed must understood well before a KPI view is set up.

To get that right if you are in CFO team and preparing reports you should go ask the CEO first what he or she needs and then ask the executive team and so on down to see if they are aligned on the key numbers and how they weight-out. They all will quickly tell you what is important. And when you related that to the PLBS at their level you will be able to see where it all fits. If you are the CEO and your team have KPIs that align with yours, that in turn can be their score card, If not you will have issues. To help on that the CFO team, using the PLBS as the base can tailor reports that everyone needs to show delivery performance and stay aligned with the business goals.

In the end all reports must be designed such that everyone who is involved in the business can see their part and see their current position compared to the plan and their contribution expected. And when it falls short it must show have options to make reforecast projections on recovery action.

For KPI or dashboard reports to be accepted they must also always be supported by more detail to dig down more and when things are not right and preferably down to the transaction level an updated on a real time basis in line with management responsiveness cycle at each level . For example if revenue is volatile due to market competitiveness each day, then there is no point reporting monthly as action taken on that is far too late to stop business erosion. And if you find pipeline stacking shows sales spikes at the end of the month if you change you reporting to be weekly it will flatten out and can increase the momentum.

And whether it is sales and product profitability by customer or delivery activity for supply or just compliance, the center piece for all this again is always the profit and loss statement and the balance sheet to build the performance focus around.

To understand this more the profit and loss statement has embedded in it all the trading activity that occurs.The balance sheet in turn shows the position and health of the business for all then financial resources invested, including such things as available cash and working capital and working assets and so on. The link of the trading activity to increasing net assets and in turn the shareholder value focuses attention on the investment growth and risk management and to maximizing the rate of return  And just  like the profit and loss, a must-have is the forecast update to show projections to correct erosion issues.

Finance people know traditional financials with just numbers are not enough with the performance ratios and variance reporting implicit on each. For example comparative performance to plan and last period are very key measures as is gross profit and return on investment. At the operational level, equally important are such things as the performance of accounts receivable which best measured in days overdue and inventory measured in the relative number sales days stock held.

These reports can all take differing forms and there are so many ways to visualize the key elements . They may also be called by different names and even split into parts to add more activity detail. But in the end they are fundamental. They have to disclose all revenue income and all business activity costs and relevant rations in controllable chunks to show the net trading result  The venture investment in turn, as deployed must be disclosed and grouped by risk within each class or asset at current conservative carrying values and liability at all up and even potential exposure. In corporations for example that often span multiple geographies or regions and cover varied activities the consolidations, they must also cater for often complex various ownership interests, currency perspectives group eliminations and group level fair value provisioning and must handled very efficiently.within the reporting environment.

In addition International Financial Reporting Standards, (IFRS) now being more widely adopted across the globe and by regulators, is seeing additional disclosure. For some especially in Asia where it now coming into force, the a take up effort is quite significant as changes are being made. But the flipside is the opportunity this presents to many, who the need to refocus to upgrade their reporting, to use this as the catalyst to reduce their reporting cycles times by  improving processes and systems. Better reporting aside, the cost to benefit of the improved production for a more efficient system quickly becomes very clear.

Hence these two reports which include KPI’s are the most vital as the center piece of all business management.  They are not only vital for collaborative transparency of all accountable management to see where they fit but also to let them be seen to be doing their part. All other reports are then be built around these including cash flow reporting.

The technology we have now sees, typically web based drill down and analytics with security to filter accountable reporting at all levels. So even if it all sound so complex all this is now very possible to do from this single report base taking data from multiple transaction sources and system.

So once the KPI and key financials are fully set up the next question may be, what do the operational managers want? My answer is to find out what drives the activity and how the outcome measured impacts the financials KPIs the CEO sees. Then report as a sub-set and you cannot go wrong. For example, if you are in production, the key drivers are sales orders and inventory levels to tie them into in the financials. Likewise if sales are your aims, then sales lead conversions may be your critical drivers; as do overdue accounts that tie to the working capital as debtors show at risk conversion to cash.

Hence, when all that is in the reporting model, means at any level and any perspective  performance tracking against plan and ongoing projections is now very simple. And be-it Operations, Sales or back-office or the CEO the CFO and even Corporate HQ they will know their value and can collaborate well to fix any roadblocks and marshal resources as needed in context of the overall picture. No less they can all see and discuss what is happening in the business with much more comfort in the answers they give and get to have control and more time to concentrate to grow the business.

Ingredients of World-Class Business Intelligence

imageRunning a business needs information, as does knowing how use it to drive the business. But business Intelligence is stubbornly complex. To cover all bases and make things impressive we sometimes have many options and features that just make things complicated. But in the end we all know it is “Simple” that works” as people lean to cut away the facade.  But getting them there in the first place is the trick.

On that Timo Elliott, in his post this week, focuses on just 5 very key things that make a business intelligence systems world class.

As a tool, Business Intelligence systems are not just about the technology and analytical reporting. It is really about how to use it and make it work to be effective for it intended purpose; To improve the business by changing successfully to being able to meet the demands of an information CULTURE in the organization.

If you are a business manager and still have a question on what business Intelligence is, then this is a must read. If you already have a business intelligence system it an even bigger must to get best value. And just as a record and model it is also a keeper, if not only to serve to help others, like me, doing change management work to focus on delivering BI so it works.

From Timo Elliott’s, BI Questions Blog post, I have summarized here the essence of his points.

Changing the Business

Focusing on the end goal – even though the BI provider may not be directly responsible for it – leads to the types of behavior that correlate to BI success:When you have built the data warehouse and started providing the reports to the business people – that’s just the start of the real project of changing the business.

People

If 75% of success is about people, why aren’t we spending 75% of our time on it? BI is a crucial interface of the dollars invested and the people who can unleash the value.  User adoption is systematically under-funded, and executives don’t understand “why it all seems so hard – I just want these numbers!”; business teams end up downloading information into Excel because that’s what they’re used to; etc. etc.

Simple Data Access for Everyone

Provide something that’s “too simple”, and then create a community around it.  Design something for everybody, but initially keep the features deliberately, even artificially low Roll out some simple analytic information to everybody in your organization that is incredibly simple to use – basic reports, with every fancy option turned off. Once you’ve done this (and promoted), you’ll find that people soon come and ask for more information

Telling Stories

For all the insistence on “hard numbers,” executives – like the rest of us – are surprisingly anecdote-driven. You need to be able to tell the stories behind the numbers and how it helped individuals transform the way you do business.You’ll find a great story (and if you don’t, then you really need to rethink the foundations of your BI initiative).

Sticking With It

BI remains a stubbornly complex, hard-to-simplify technological and business problem. The environment is ever-changing, and there are no real silver bullets. It’s not about having a perfect data architecture It’s about making endless iterative improvements, making the right painful tradeoffs, and picking.

His original post is on his site. Below the “read more” fold here is a copy:

Continue reading

A simplified approach to master your income statement to cut costs.

imageMastering your income statement is something many are troubled with, when they need to know where to cut. It is especially hard for those in business with shoe box accounting systems. But by removing the jargon it then becomes more understandable and moves it to the more friendly category of “accounting for non accountants”

A simplified view can also help business managers understand what drives their business and what adds value to the bottom line.  Technical accountants can communicate better too in more lay persons terms.

Here are some simple definitions :

1.Sales Revenue.

Often called the “top Line” this represents the amount the company has sold during the period. When there is more than one line of revenue shown above the Total Sales Revenue it provides detail as to which products or services are major revenue producers.

2.Sales Costs.

This is what it cost the company to generate the sales shown in Total Sales Revenue above. Compare the total costs to the total revenue, but also look at the cost of each line of product or service versus its revenue. Sales Costs is also known as Cost of Goods Sold (CGS).

3.Gross Profit or (Loss).

This is the difference between Sales Revenue and Sales Costs. If the difference is positive, and it had better be, it is profit. A negative difference is a loss and is shown in brackets.

4.General & Administrative expenses are called G&A.

These are the costs associated with running the company as opposed to the costs of making or buying the products (CGS above). These costs should be monitored closely and kept as low as possible.

5.Sales & Marketing expenses.

These are other costs not directly related to producing the product or service to be sold. While certainly necessary, sales and marketing costs should be monitored and compared frequently to similar numbers from other companies in the same industry with products in the same point in the life cycle.

6.Research & Development (R&D) expenses.

This is the part of its income a company is re-investing in the business to find and develop new products. It’s an indication of how much management values innovation. Look at whether it is increasing or decreasing from year to year.

7.Operating Income.

This is what’s left when you subtract all the operating expenses from Gross Profit.

8.Income Before Taxes. After subtracting any interest paid on outstanding debt from Total Operating Income you are left with Income Before Taxes. This is the amount on which the company expects to have to pay taxes.

9.Taxes.

This is the amount the company has paid or expects to pay in taxes for the period. It includes all taxes to all jurisdictions.

10.Net Income From Continuing Operations.

After subtracting taxes from its income, this is what the company has left. Think of it like a workers take-home pay.

11.Profit Margin.

This varies from industry to industry, but is a good measure to compare similar companies, from either an investment or a benchmarking perspective. It’s like the interest rate you get on your investment. The 5-6% shown by this company seems low for a manufacturer and would warrant looking into.

12.Non-recurring Events.

This is the cost of any one-time expenses, for instance, restructuring the business, a major layoff, or an un-reimbursed casualty loss. These are shown on a separate line so as to not confuse the “continuing operations” figure above.

13.Net Income.

This is what the company has left after subtracting all its expenses from its total revenue. If the difference is positive it is profit. A negative difference is a loss and is shown in brackets. For a company to remain healthy and in business, this number needs to be positive most of the time. Most for-profit companies strive to make it as big a positive number as possible.

14.Dividends to Shareholders.

Companies pay dividends to the shareholders who own the companies. If any dividends have been paid during the period being reported, they are shown on this line. These can be to common stock holders, preferred stock holders, or other investors depending on the company. Dividends usually are paid only once a year.

15.Net Income Available to Shareholders.

This is “the bottom line”. This is the money the company has left at the end of the period. It is held for future needs, invested as the Board directs, or returned to investors in the future.

A friend provided this material. It would good to see what he suggests to manage the balance sheet especially for wealth creation and exit strategies for SMB’s. Perhaps he will share that too so I can re-publish too.

In the meantime to give him a plug if you are in the US and or near the Boston area I am sure he would love to help you with your business. http://abusiness-consulting.com/or call @ +1 508-620-4579

While I am in the mood to do free plugs, if you are near my firm in Melbourne Australia and want help relating this to your performance management to improve your bottom line, our team will be delighted to help. http://shernox.com. Or call me at +61 3 90185302

“Planet Blue” clock is a ticking time bomb!

imageIn April this year we came across a measure system that was updating world statistics in real time format.  Since then some colleagues have been tracking the change which is quite staggering.

For example when look at the meters running now compared to the snapshot we took in April, the population growth year to date is now a staggering near 60 million. Annualized in percentage terms you could say that 1% is not that much of the total 6.9 billion. But consider also in that time that the planet has reduced in livable area by more 1% too as have deserts increase by nearly 2m hectares.

To make matters worse we also see the frightening Cancer and Aids statistics of nearly 10 million and an unacceptably staggering malnourished ongoing in disastrous and impoverished zones in total effecting over 4i million people,  On the opposite side not tabled are all the well to do oldies all now living way longer now. This means the net increase of Newbies will have less room to play while we demand to be taken care of from their taxes. In China especially now we need to just watch this space as a faster developing middle class there become petrol heads and use more of the resources.

A snapshot of the World clock numbers as at Oct 8 2010  means we are now able  to compare these to the April snap as follows:

image

It certainly shows the planet is warner, thanks to the 21 Billion  tons of C02 being pumped upstairs to keep the heat inside. It is worrisome as well to see the oil  reserves have continued to further decreased as has the exhaustion timer.

Depletion of the Oil reserves was of course accelerated by wanton waste and massive ecological damage caused by pumping of 23 billion barrel of  crude straight in into the sea. BP Oil in the gulf of Mexico being the majority although Nigeria has been pumping into the hinterland for years.

On the issue of population and space for us all to live I am reminded of some years back, of a theory I had when flying in and out of places like Los Angeles, London and New York. Counting the staggering number of planes coming and going saw my theory, accepted at least in humor circles, when making the point about sustainability innovation. I argued we could count as useable living space seats on planes being constantly in use and travelling.

My useless counting by the way helped kill the boredom of what were most often a long take off queues. And in my overnight stays near the airports, like counting sheep, I found was a good trick to overcome jetlag and get to sleep. I did note however a constant 24 hour stream of planes on the glide path all landing within minutes of each other in those places. And my mind would rattle as I tried to compute the fuel burn and the likely number people in the air at any one time.  Around the time also World Trade fiasco saw everyone grounded and put paid to my theory as the opposite perspective took hold and the skies were then totally empty.

But even then my estimate of having 500,000 people always airborne was a drop in the bucket to solve the issue.  My guess I later found out, was way off when someone told me a Discovery Channel program had estimated 260 000 people is in the air at the same time. So I revert now to repeat the comment made in April as sensible to continue to make the sustainability point.

This earth clock shows incredible depletion rates that are actually frightening. When you see them presented in this interactive update page, yearly, monthly, weekly figures are one thing but what really makes you think is the daily depletion rate changing before your eyes.

Poodwaddle.com

Tolling on our minds as well is the fact that deserts of the world have now increased to over one-third of Earth’s land surface. And this has occurred as the populations expand and resources get burned.

clip_image004That encroaching fact has troubled even early years school children for decades but what is making this increasingly trouble-some now is the rate of tropical deforestation, which at the current rate will see the world’s remaining tropical rainforests will vanish in just 30 years.

Deforestation in the tropical areas of the world is following a course similar to the earlier clearing of the forests in Europe and North America, only advancing more rapidly.

In a paper I found entitled The Future of the Rainforests,  it quoted scientist estimates that 10,000 years ago, the world had 6 billion acres of ttropical rainforests. By 1950, we had a little less half of that left which is now being cut down at the rate of about 10 to 15 million acres per year, so we have only 1/4 left  now being 1.5 billion acres. The message is crystal clear. We must protect the world’s remaining rainforests and their rich biological resources.

clip_image006The graph on the left say with out any change of approach there will be nothing left for my 3 year old granddaughter’s kids.

Perhaps once glimmer of hope is the increase in forests replanting, as shown on the clock figures, giving us perhaps a sense of hoe that something can be be done. But all that does not even go close to the mark to compensate since April.the nearly 53 million new faces who now have to feed,  The outlook for them may be there will soon be no space for them to sit at the table to eat.

The big questions are how can we stop this and who will do it?  For sure, without the resolve of business and governments globally to work collectively and enforce excesses reductions to stave of certain oblivion it will be unachievable. More to the point what are you doing about it?

I have bookmarked this page to check back later to update the clock.

You can also subscribe to this page to get updates ongoing and comments by others.

Should IT report to the CFO?

Using IT well brings in new business and helps maintain the existing. This will become more important as we continue to harmonize on the cloud. I argue IT is therefore strategic and should be part of the CEO team.

But with the highly sophisticated CFO as a major influencer with a significant roles in running the business, they now understand IT use for both growth and control, Hence they are taking control of IT. Commercially we will see this more as IT applications management devolves to the cloud See my post http://www.performancecontroller.com//2010/07/cfo-x-factor-as-vendors-drive-for-internet-cloud-power/

Counter to that being a good thing, many businesses that make IT part of the CFO function on the logical basis it uses most of the data and hence needs control of how it is managed by IT, may lose sight of marketing sales and operations needs and can constrain the business. A vexing question for sure but IT also needs to take good look at itself too, so they can service and be strategic all areas.  I believe only the CEO can make sure that happens and should.

That’s just what i think, but here is what some other CFO’s and CEO’s thought!

 

Arun Vasan

Arun Vasan  • I think CFO is the person who is closely in touch with the IT issues on a day to day basis and thus he can deliver an effective result when the function to reports to him in terms of data security, effective internal controls etc.

 

Chuck Leindecker, CMA Chuck Leindecker, CMA  Many times because the lead finance position is responsible for SOX and SOD.

 

 

John Williams John Williams • The CFO is responsible for accurate and timely reporting. I have seen several organizations where IT did not report to the CFO with the result that IT did not assign appropriate priority to financial controls and financial reporting. This is a similar situation to having the outside sales people not report to the EVP of Sales, then holding that EVP accountable for their poor performance.

 

Doug Cate

Doug Cate • Sometimes, it is a matter of talent and interest of key managers. Who of that group best fits in that function is also a matter of time management and efficiency. For example, if the CEO for instance wants the company to move to a paperless function, has a “thing” for technology, and it fits into his overall vision of the company, then perhaps he/she should lead the IT effort. However, this best functions when the “needs” of the CFO are met and understood, i.e. accounting controls and processes are addressed in the “solutions” for IT functions.

 

Richard Bonilla, mba [  lioncpa group  ]

Richard Bonilla, • It’s all about information.

 

 

 

Spencer Brady •  (Can Gartner be wrong? I don’t think so, at least not in this particular case.
IT must report to the COO, or to the CEO, otherwise, the organization will be left behind in the race to be first to market with newer, better, faster, cheaper products and services. This reality is due to business’ reliance upon IT for support, and moreover, for a ‘strategic advantage.’ The CFO is a vitally-important customer for IT, but, a customer nonetheless, who must compete for scarce IT resources.

Patrick Jongen

Patrick Jongen • Reading the comments, it thought it was funny to see how people closely related to IT are questioning the fact that IT often report to the CFO) The role of the CFO is evolving well above pure finance with many CFO becoming the “CEO’s right hand”. In this elevated role the CFO is responsible for measuring the performance of the company. This implies using “INFORMATION” and information comes from “DATA”… obviously data comes from IT. Turning data into useful information was not always a success for IT in the past in many companies, leading to under performing organizations.
From this point CFO had 2 choices:
1. Asking/getting the responsibility for IT in order to get better support or
2. Starting parallel projects with as limited IT support as possible.
Today, we are seeing both situations.

Have you say. What do you think?