The Month-End Reporting Package

I have been using a monthly reporting package since my first company I started when I was in college.  There wasn’t much to report, but it helped keep us 2 owners focused, on track, and profitable.  The month-end summary transitioned over the years from balance sheet and P&L to charts and graphs and mobile dashboards.

Working with companies of all types and sizes in every industry, the value of the month-end reporting package can be immeasurable. 

It helps keep small business owners focused, accountable, and profitable.  In larger companies, it helps keeps teams aligned, engaged, and driven. 

Some small business owners I work with are secretive with financial information.  They don’t want their team to know how well or poorly they’re doing. I think that's a mistake, but it's their business.  To me, open book financial reporting makes sense.  Either way, the smaller business owner needs to see the information for themselves.

I also like a daily flash report and weekly dashboard.  It’s interesting how dashboards can now easily integrate into your data – producing great information on a real-time basis.  More about dashboards later.

Everyone’s month-end package is different.  Keep it simple and readable.  Too much detail on the income statement, for example, is not helpful.  80/20 your thinking. 

Here’s a quick checklist to help improve yours:

q  Cover page

q  Strategic one page summary – vision, strategic sentence, quarterly goals, etc.

q  CEO, CFO, Sales reports, if applicable

q  Income statement – comparing summary P&L month-to-date and year-to-date to the previous year and to your plan.

q  Balance Sheet – compare to prior year

q  Historical graphs (a picture is a thousand words): segment sales, cost of goods sold, gross profit, top few expense lines, net income.

q  Top 20 customers’ month-to-date and year-to-date Sales, GP$, GP%; Sales Analysis; Geography

q  Top Vendors month-to-date and year-to-date purchases; Top 20 A/P balances

q  Top expense line items with flux comments

q  KPI data and graphs (company specific; sales, gross profit, new customers, lost customers, ASP, revenue/mile, revenue/visit, etc.)

q  Cash flow driver graphs – A/R days, WIP, Inventory days, A/P days; Financial ratios

q  A/R Aging for the month and historical

q  Departmental summaries, if applicable

q  Top 3 priorities from prior month - status

q  Subsequent month top 3 priorities

Use the month-end reporting package as an opportunity to really step up your financial close process with accurate and timely final numbers. 

Again, the reporting package is always company specific, but is a huge opportunity to improve communication and get financial accountability and growth; and better profit and cash flow.

If you need any help developing your monthly financial package, let me know.

In good health and profit,

/jon

Grow or Die

I was talking with one of my clients earlier this week on growing his $50mm energy services company.  These guys process about 14,000 invoices per month with an average invoice ticket of approximately $300.

The only way to grow any business is to grow the number of customers, increase the average sales value, and/or increase the frequency of customer purchase.  That’s it.  

The key is to focus on improving each component.

I have used this simple formula with many types of companies including medical offices, construction companies, HVAC companies, truck parts distributors, job shop manufacturers, and technology resellers.  It's a formula and it works.

Once you understand the power of this, it will help really grow your business. 

I’ve talked about this before, but consider the following formula. 

Revenue

	Number of customers
x	Average sale price
x	Frequency of purchase per year
=	Revenue

I put together a program for one of my client’s segment and had the following results.  Amazing, small growth percentage with geometric results.

Number of customers	1,000	1,226
x Average sale price	400	456
x Frequency of purchase per year	7	7.5
Sales	2,800,000	4,192,920	50%

Notice the geometric growth – a 22% increase in number of customers and 14% increase in average sales with small increase in frequency of purchase gives a 50% increase in revenue. 

For the energy service company I was speaking to earlier this week, we outlined a small increase in the number of customers 7% based on current growth trends and an additional service offering to increase the ASP $100 as follows:

                                                       Current                  Plan          Chg

Number of customers	14,000	15,000	7%
x Average sale price	300	400	33%
x Frequency of purchase per year	12	12	0%
Sales	50,400,000	72,000,000	43%

I will keep you posted on the actual results.

I suggest you look back at the prior 12 months of sales and get your actual numbers.  Don’t make assumptions here.  Most business owners I talk to make assumptions as to the number of customers they have and ASP, but when we get the actual numbers, their assumptions invariably are really wrong.  Dump your invoice register to excel.  De-dup the customers or compare to sales by customer.  I also like to have average invoice value as that may be an easier way for your sales reps to focus on. 

Note - I love the simple trick in Excel to de-dup a list (data menu, remove duplicates), then use the sumif formula.  I use this trick all the time.

Once you have your actual historical data, develop creative strategies / ideas to increase each and EXECUTE a couple strategies.  Test and measure the results.  Optimize, then repeat.

It’s the only way to grow your business.  Customers x ASP x purchase frequency = revenue. 

Think growth and think profit,

/jon

Forecasting Predictable Results

 Besides forecasting and improving cash flow as I’ve been discussing in the last few posts, forecasting predictable results is the other huge problem business owners have. 

Forecasting is alone is difficult, but with predictable results makes the process even harder.  But – business with predictable results are worth much more than a business with a P&L graph that looks like my EKG – AND you’ll will sleep better; you can plan better; and you can focus on really growing and developing your business.

To help forecasting predictable results, follow these steps.

1.     Ensure month-end closing procedure tight and efficient.  The numbers need to be solid and timely.  It is essential to have a solid base. 

2.     Develop a consistent monthly reporting package.  Understand the numbers and what they are telling you. 

3.     Develop and use an Operating Plan with forecasted income statement, balance sheet, and cash flow.  Forecast and track overall profitability and cash flow drivers. 

4.     Analyze customer profitability and profit drivers.  The best way to leverage improvements and maximize profitability is to: analyze, measure, identify underperforming areas and improve those areas.

5.     Look at all processes for efficiency and Value Stream Map each process – again, measure and optimize.

Let’s break each down a little more.

Step 1 - Ensure your month-end processes are tight and efficient

·            Accurate and timely financial information is paramount for your business. 

·            Have a month-end closing book or network folder that is neat and organized.

·            Use a closing checklist for you, your bookkeeper, or your accounting staff – whoever is responsible for the financial statements.  Checklists are great for all standard processes.  See an example here. 

·            Ensure all accounts are up to date and reconciled.  Many business owners only care about monthly profitability and only look at the P&L.  Ensure the balance sheet accounts are accurate and reconciled.  I’ve made some really bad decisions based on bad balance sheet numbers.

·            Develop strategies to close faster.  The timing of issuing your financial statements obviously depends on complexity of your business – but work to improve the timeliness of producing accurate numbers.  I know many companies that close in one business day (I know others that can take 2 weeks).  Work to continually improve.

·            As a small business owner, sit with your bookkeeper or accounting manager and review each financial statement account.  This will engage them in the process.  If a larger company, sit with your CFO and leadership team to review the monthly financial statements.  This is mitigating control is essential and enhances overall participation, buy-in and contribution.

I will take each the other steps planning, policies, and processes for each step in future posts.