Financial Reporting:
What to Look For
Good financial decisions stem from quality financial and operational reports. Therefore, it is important to know how accurate financials benefit your company and what to look for in your reports.
Accurate financial reports and related dashboards provide regular health checks that highlight areas that are performing as expected and those needing improvement. Working with monthly versus annual reports enables you to create an action plan to meet the goals of your company.
When reviewing your reports, the two key areas to look for are:
- Financial Drivers
- Financial Impactors
Financial Drivers
Financial drivers are internal and external factors that influence the growth and/or performance of a company. Therefore, it is important that business owners and key decision makers have a clear understanding of the operational metrics (e.g. customers, core products/services) that drive sales or gross margins.
Financial Impactors
Financial impactors are factors that influence business decisions and are critical to maintaining a healthy financial position. Impactors tend to be more internal factors (e.g. cash and working capital) and help to provide a framework to position your business for growth. While there are external factors beyond our control, knowing what your financial impactors are will help to mitigate risk.
- Sales and break even sales – dollars and volume
- Pricing
- Costing, cost management and cost behaviours
- Capacity and cost absorption
- Supply chain management
- Labour productivity – efficiency and turnover
- Cash management
- Economic and industry trends
- Head count and man hours
- Inventory analysis (ABC analysis / moving or non-moving stocks)
- Manufacturing plan
- Customer acquisition strategy
- Sales
- Break even sales
- Gross profit (GP)
- Contribution margin (CM)
- Earnings before interest, taxes, depreciation & amortization (EBITDA)
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Now that we’ve defined what a financial driver and impactor is, let’s look at an example of the two in action.
For a mechanic, the financial driver would be the number of cars coming in to be serviced. The financial impactors would be not having enough capital, cash or the marketing budget to bring in those cars to be serviced.
So as we can see, the financial impactors provide guidance on how to deploy the budget in order to improve the business, and the driver is the factor impacting the performance and growth of the business.
Understanding the financial drivers and impactors of your business are crucial to the longevity and success of your business, and will aid in major decision making. Ultimately, knowing what to improve in your business will help drive the value of your organization.
With this in mind, it’s important to have quality financial reports that are customized to your company’s needs and follow accounting standards and best practices. Organizations at any size can now have quality financial statements prepared at affordable costs.