I meet with a lot of executives, nonprofit board members, peers and members of the business community. Everybody waits. Besides waiting in traffic (especially here in Boston!), waiting in line, waiting for tonight’s game, and waiting for the weekend, we wait for the next round of financial reporting – weekly dashboards, monthly financial statements, quarterlies, and “the audit”. Hey even AC/DC wasn’t havin' no fun waiting round to be a millionaire! So much waiting.
Meanwhile, decisions need to be made with or without timely data. Some decisions can’t wait. Decisions around product pricing, when to press collection issues, staffing, purchasing, and strategic decisions such as acquisitions, expansion, financing, etc. Timeliness impacts all these matters, either by making decisions without the data, or delaying progress until the data is available.
Why? What’s the struggle, and what can be done?
First, understanding what’s a reasonable schedule will help. Secondly, having the right system in place to efficiently and accurately generate data, and thirdly, having the right people in place to help stick to the schedule. I think the first point sets the tone. If you’re a CEO, owner, or board member, you SHOULD expect timely financial information. Significant delays usually indicates there is something wrong in the system somewhere.
If all this sounds familiar and you want to do something about it, it is very reasonable to set expectations and implement a plan to accomplish the goals you’ve set. What makes sense for a reasonable deadline for a monthly close and delivery of a financial statement package for an average company? “It depends”. I hate that answer, so I think a general rule of thumb is somewhere between 15 and 30 days, depending on the complexity, and if you’re not seeing that timeline, it may take a few cycles to get there. I’ve seen some companies close their books as quickly as 10-15 days, but I do think it’s difficult for the “everyday” company. Incidentally, for public filers, a quarterly 10-Q is due 45 days after quarter end, and that report is incredibly comprehensive, so for a non-public filing, I think the above timeline makes sense.
Is your company closing their books with accurate data within this rule of thumb? If not, and you would like to do that, I think you start with setting expectations, and work backwards to set mini deadlines needed for all the major milestones needed in order to close the books.
An overly simple example may look like the following, in reverse order, in terms of the number of days after month end:
25 Days Issuance
22-25 Days Final Review
20-22 Days Preparation of “Management Discussion & Analysis” or CFO Report
17-20 Days Preparation of financial statements package
17 Days Initial review by Controller and/or CFO
5-17 Days General Ledger reconciliations and Other Journalizing
10-15 Days Close Accounts Payable
3-5 Days Close Accounts Receivable and Revenues
If this sort of timeline does not seem feasible, then the company’s leadership group should assess barriers.
-What is holding us up?
-What can be done?
-Are there ways to accelerate the process, such as use of estimates?
-Are vendors holding us up, and can we have a conversation with them about the problems they’re creating?
-Is additional training necessary?
-Do we have the right people?
-Is there technology available that can help us?
-Is there unnecessary work being done that could be eliminated to accelerate the process?
Sometimes a fresh set of eyes can help assess the processes and barriers, as well as nudge the team towards different expectations.
While we’re on the topic, what should be in a standard regular reporting package? That could be a standalone subject. To truly understand a company’s entire financial condition, leadership should be reviewing a balance sheet, income statement, statement of cash flows, and possibly a schedule of equity activity. Certain corporate structures have different names for these statements, but hopefully this is clear. I frequently encounter companies that have standard reporting packages that do not provide the reader with the opportunity to understand all of the financial issues of the company. I oftentimes find that companies will monitor income statements but again, that may not review the full picture. If the company is enduring collections issues, that’s not going to come up in a review of the income statement, as an example.
Other key components of a quality monthly financial reporting package may include some sort of dashboard with key performance indicators that helps financial statement users understand the story behind the numbers.
By the way, I’ve focused on monthly financial statements, but certainly, there is certain helpful data that may be available more quickly, such as drivers of the business – certain inventory turnover, widget sales, other customer encounters, etc. As the financial statements are being generated, data starts to come together for review. Therefore, leadership should not have to “wait” for all the data.
A lot of companies struggle with this, and they don’t even know they’re struggling. They may think it’s normal to wait 90 days for normal financial data. It’s not. It doesn’t have to be that way. With some planning, you can have the data you need to run your business when you need it.
“No Waiting” signs are awesome. Flock to those checkout lanes. What are you waiting for?
Karl spends his time thinking about ways to help organizations with sound financial decisions.
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