FINANCIAL FOCUS: Measure your performance weekly
CHARLESTON - Today we are living in a new age defined by global competition and faster flow of information, which leads into increasing business complexity. Knowledge and continuous learning are critical elements of success.
In this fast-paced business environment, it is essential that you monitor your key financial and operational data on a weekly basis to keep up with the demands of this new age.
The flash report is a powerful tool to analyze business performance on a weekly basis. It is a rough measure of change. While they are not meant to be 100 percent accurate, flash reports can capture 80 percent to 90 percent of a company's financial position. For more accuracy, management can refer to its monthly financial statements which normally come 2 to 4 weeks after the month is closed.
Receiving monthly reports is no longer timely enough to run a business in this economy. Management needs to react more quickly to both problems and opportunities, and often the reaction time on the monthly reporting is at best ten days after the month closes. This means management is taking action no less than 10 days, and more likely 20 days or more, after identifying data is available.
Flash reports can take as little as 30 minutes to prepare. The longer they take, the more costly to maintain. Flash reports can have three sections:
LIQUIDITY: The purpose of the liquidity analysis is to measure the change in working capital of the business in order to determine whether or not the business can pay its bills and how much money will be left over. Monitoring working capital allows management to see how and why cash increases and decreases.
PRODUCTIVITY: The productivity analysis helps to monitor the utilization of company resources. For instance, manufacturing firms may analyze costs per employee and service firms may look at average billings per employee. Utilization percentages could shed light on why revenue was up or down for the period.
PROFITABILITY: This analysis gives an estimate of how much money the company made during the period. Profitability can be derived from a number of things such as sales volume, unit prices and unit costs.
Another option is to analyze revenues, cost of goods sold, gross profit, overhead and net income directly from the accounting system.
Key investors and creditors might be wise to require and utilize flash reports. On the flip side, management may be smart to proactively provide such information to investors and creditors.
Flash reports are a powerful tool that provides management, investors and creditors snapshots of the business performance to assess the current state of affairs. These reports allow users to identify risks quickly and respond to changes immediately. Emergencies can be proactively addressed at the problem stage rather than reactively in the crises stage.
Nistendirk is a partner at Woomer, Nistendirk & Associates PLLC, a CPA firm located in Charleston. Bob has extensive experience in accounting, taxation, strategic planning and financial/business consulting. He can be contacted at firstname.lastname@example.org.