Money loves speed. The faster you can produce your financial statements, the faster you can read them and implement the lessons they have to teach.
The financial statements are the numerical representation of our company’s performance. The financials show us what is working, what isn’t, and give us a road map to attack problems and take advantage of opportunities.
Unfortunately, many company financial statements take so long to produce the information is old news by the time it reaches our desk. We get June’s financials just about the time we’re done with July, and by then it’s too late to take action with the information to make corrections to improve company results.
What we need are real time numbers that provide a snapshot of our financial statements. We need the information quickly so we can act on it while the information is still relevant, while the trail is still fresh.
We produce sales reports every day, why not a set of financial statements?
For many distributors, financial statements take a long time to prepare for several reasons: 1) We’re trying to make them 100% accurate, waiting for invoices to come in, recording actual expenses instead of estimates, 2) there are delays in receiving required reports from other departments which we deem crucial to completing an accurate set of financial statements, 3) and the biggest reason of all – because this is the way we’ve always done it.
Let’s knock down each of these excuses for tardy financial statements one by one, and give you some action items to follow so you can produce real time financials of your own.
- Trying to be 100% accurate. In a word, don’t. Even the best financial statements contain estimates. We estimate the useful life of assets and expense them based on a best estimate. We estimate payroll expense based on how much the previous payroll was. There’s no reason to hold up your real time financials, which contain information you need today, trying to go from 90% to 92% accurate. It just doesn’t matter. Have your finance team make estimates based on the best information available and publish those financial statements.
- Delays in receiving required reports. First, determine whether the report is going to give you information that has a material effect on the financial statements. Nine times out of ten it doesn’t. Don’t wait, publish the numbers.
- That’s the way we’ve always done it. If you want real time numbers, you’ve got to have real change in your process. Change is hard. They say that change is loss, and people don’t like to lose things. Sue in accounting has been doing it this way for thirty years, and she sees no reason to change. It’s up to you to show her the light.
- Set a goal to produce your financial statements within one day after the month end.
- Have your finance team make a detailed review of your month end process. Identify the road blocks and hold ups that create delay and remove as many as possible. As a guiding principal, if a task slows down the works, but doesn’t make a material change to the numbers then toss it out.
- Document your new, streamlined month end process, roll it out to the finance team and implement it.
- Savor the fresh baked numbers.
Money loves speed. Money does not love journal entries and depreciation schedules which add little value and hold up the works.
Trim the fat from your month end process, eliminate those unnecessary steps, and get you some real time financial statements.