1. Lack of basic financial information. The main pitfall of companies is that financial information is not shared in a timely manner throughout the organization. For information to be valuable, it must be shared within a realistic time frame. More often than not, the information exists but is not provided in a timely manner to those who need it.
2. Lack of comprehensive financial information. A comprehensive analytics report should be produced by each company and organization. This report should relate each balance sheet, revenue, and expense item. Providing calculations, such as length of time in the receivables and inventory departments, can enlighten the company to problem areas and unfavorable trends.
Provide statistical information, trend reports and extensive calculations, such as cost per unit and gross margin by item. These reports are crucial to the proper management of a company and offer valid insight into the health of that company.
3. Inaccurate or incomplete information. Accurate and complete information is crucial in financial reporting; however, most companies prepare financial reports with information that is both inaccurate and incomplete. If you find dramatic variances in the inventory, cash and accounts receivable balances versus your actuals, you need to take a look at the information. Often, these discrepancies can be explained. The reasons may include data entry mistakes, returns not being entered into the system or the balance sheet not reflecting all divisions.
4. Lack of future-focused reporting. Many companies are familiar with looking back through the financials and reporting on past trends; this is called historical cost accounting. To produce effective financial reports, companies must look ahead and make projections about the future. Reports such as cash flow calendars can predict upcoming cash flow balances for a three month period and can signal advance warnings so the company can take immediate, and preventative, action.
Many companies run into obstacles because they are constantly looking backward instead of forward. Looking to the future can provide valuable insight as to where the company is headed, as well as alert you to upcoming obstacles. Continue to make projections throughout the year and incorporate those projections into your financial reports.
5. Lack of event-triggered reporting. Today’s accounting systems have the ability to alert you to drastic changes or undesirable outcomes in your financial information. These systems continuously perform calculations and compare the results to the criteria you have defined. For example, accounting systems can warn the appropriate people when cash balances far too far, when inventory levels are too low, or when gross margins for a particular products have fallen below the acceptable level. An email is typically sent out when instances such as these occur so the correct personnel can take appropriate action.
Taking the time to establish criteria and set up trigger-event notices will help you become more proactive in managing your financial data. For more information about effective reporting, click here.