Why you must make sure financial information is periodically, timely and properly communicated to those who really need it
There are many blog posts here that focus on how important accurate and complete data is in assessing the financial health of any organization, past, present and future. I’ve also written on more than several occasions on how critical it is to employ the right tools in analyzing financial data spanning historical periods, the current fiscal year and all future periods presented through a plan and budget.
All these data, when correctly used, can provide insight into the company’s performance and even project the financial direction it is headed in and influence the decisions that management must make along the way, such as:
- Will the company be able to continue and sustain its growth (given that marketing and sales opportunities are executed according to plan)? Are specific changes needed to achieve that?
- Will it have the cash required for this growth? Will it require additional financing? When? In what amount?
- What additional employees are going to be needed? In what departments? When?
- Will the company have to restructure its operations anticipating a downturn in the economy? Will the workforce have to be reduced? How? When?
- Will new financing be required in order to be able to weather this economic downturn?
- Will selling of certain assets be required? When?
- Is the company facing new competition? Will it need to change its strategic and operational plans?
There is little doubt that such important decisions must be supported by reliable facts; this is true both personally and in business. Simply relying just on experience, intuition or speculation usually does not work. We all see how even large organizations make poor choices and decisions (this is usually discovered months and sometimes years later). We witness badly executed acquisitions (or acquisitions that should not have been made in the first place) and expansions into new product lines and new territories without proper research and analysis of existing data and business intelligence. We observe decisions that were not based on facts or reliable data, or due to inability to properly read and understand that data because of lack of a structured analytics process or poorly chosen tools for this job.
Yet finance executives and professionals are tasked with providing management with this needed information, delivering presentations that are both complete and accurate and also easy to understand.
I’ve seen organizations that had the need and opportunity to set up financial tools that would achieve analysis and reporting excellence, but decided not to. They were simply too wrapped up in their daily work, period end closes and delivery of internal and external reporting. Added to that was tradition and taking the path of least resistance which was often doing the same thing they have always done and were comfortable doing.
This is when finance leadership, driven by a progressive CFO, Why CFOs Need to Adopt Financial Analytics) can make a tremendous difference. They must break the old pattern of doing what they have always done, usually limited to collecting and compiling budget data only pertaining to revenue and expense items, while frequently not even comparing it to actual results and certainly not in a timely manner. A much more progressive approach, which surprisingly does not take more time or resources to complete, yet affords management the right information they need: Why you Must Forecast your Balance Sheet Part 1 and Part 2, every accounting period and in concert with actual accounting results for each closed period and immediately after each close.
When company CEO’s are measured by their organizations’ results and often are replaced when expectations are not met, it is vital that those who lead the organization are given the best possible view of their organizations’ performance, through meaningful reports and presentations obtained from a comprehensive data delivery system, Analysis of Everything that draws from past, present and future (forecasted) data. With a proper system setup, there is no reason why company managements should be deprived of critical information needed for them to successfully lead their organizations.