If you want to build a good, strong house, then you start with a good, strong foundation.
In business terms, this means accurate and timely financial statements. Not only do you need statements which are accurate and timely, but you need someone who can communicate or translate what they mean. You need someone to explain: What happened? Why did it happen? What steps do we take to improve?
How many times does your accounting team give you a set of financials and say, “Let me know if you have any questions.” Next time this happens, give the financials back to your accounting team and say, “Please briefly explain to me the top 3 important things about these financials. Tell me about what happened and what do I need to do to address them.”
Here are three examples of getting accurate and timely financial statements.
- Hospitality: $18 million in revenue. Some years ago, I worked as CFO of a hospitality group. They owned five restaurants in three cities. Daily profit and loss statements were due to the owners by 10 am every day, seven days per week. The revenue was pulled from the Point of Sale system and broken down by food and beverage. The cost of food and beverage was estimated by taking the number of units sold by the cost per unit per their menu engineering cost analysis. The labor costs were pulled directly from the time keeping system. Other costs such as rent, utilities insurance were pretty flat. By the time the monthly financials were submitted, which was within 3-4 business days from month end, they already knew where they stood.
- Manufacturing/Fabrication: $18 million in revenue. A weekly dashboard was due to the CEO by 10 am every Monday. This includes sales for the week, gross profit, cash balance, accounts receivable aging report, inventory, and accounts payable aging report.
- Healthcare: $70 million. Monthly financials are closed on day 1-2 after month end. Trends are analyzed, explained and given to the owners (private equity) by day 4 after month end.
For more on developing a strong foundation, watch this 2-minute video.
Takeaway:
Develop a strong financial foundation.
- Are you getting accurate and timely financial information? This is all about people, processes, and technology.
- Review and analyze the processes your accounting team uses to provide you with information.
Identify steps to take to make your financial statements accurate and timely. - Ask your accounting team to explain the highlights in a one-page summary.
- Hint: It is usually not about adding more people but working smarter using better processes, and perhaps adding or changing technology.
If you follow these steps, the value of your business will likely increase. Please feel free to reach out to me with any feedback you are willing to share, pro or con.
If you have any questions about measuring and growing the value of your business, please contact me for a free conversation.