Scott A. Fischer
So, you have invested time and money in accounting because you needed good information. You get a perfectly formatted income statement and a fully detailed balance sheet that is delivered each month like clockwork. You see revenue is up and inventory value is actually down a little. So far so good. To top it all off, you’ve made a tidy profit to boot. Feeling pretty satisfied, right? Look again…
What if, as it turns out, trouble is just below the surface. You find out that, while product A was flying out the door, Product B sales have skidded to a halt. Your inventory dropped because you have no more of Product A in inventory but that obsolete Product B? Tons of it. You’re in for a write down of epic proportions. Ouch! How do you avoid this?
The fact is, standard monthly financial statements, on their own, aren’t enough. You need to ”peel back the onion” to see your business more clearly, make good decisions and maximize cash. How do you define what you need to see? That depends on your unique business model.
First, look at each area of the financial statements for clues. In each area, ask yourself what drives sucess here? What keeps you up at night?
Second, work with the responsible manager to identify measurements in areas of concern. Jointly develop metrics that best convey performance on a real time basis.
Third, working with IT, identify information sources and systems needed to simplify report generation and communication to the managers who need it.
Finally, Take action. Reports are most effective when used in regular reviews with the responsible manager. Issues can be identified quickly and actions assigned to fix or minimize the problems. And don’t forget, its just as important to recognize great performance and reward it!
So there it is. Good financial statements are essential, but it takes a deeper analysis to run the business effectively. Follow these basic steps and you will really start seeing the results!