Reporting Rhythms as certain as day follows night - RUSSELL COLBOURNE

Russell Colbourne - "Your Money Machine"

Show Objectives
​As a Business Owner You need to understand what happened from a financial perspective during your successful attempt to prove the business idea (Stage II). Now you have to take that information and build the foundation for growth, growth that maximizes all of the company's capacity.

What You Need to Know
As a business owner, the following 3 Statements are your friend because together provide the details of business performance:

1. Monthly Balance Statement or statement of financial position
2. Monthly Income Statement (or Profit and Loss Statement)
3. Monthly Cash Flow Statement

These 3 statements need to be reviewed on a monthly basis and within a few days of the month end to ensure you can take any action needed to either capitalize on great work or to rapidly correct operations that are underperforming before they get out of control.

You need to set up a regular reporting rhythm that becomes a habit every month.

Here is a snapshot of the importance of each financial reporting document;

Balance Sheet

The Balance Sheet is a picture of an event - the business's financial position at the end of each month. Its purpose is to provide a clear picture of your assets, liabilities, and equity. Assets are what you own that drives revenue or supports business operations. Liabilities are long-term or additional obligations you have to gain assets. Equity is the leftovers when taking on liabilities to acquire assets.

The Balance Sheet divides assets into groups: Current and Non-Current. Current Assets are usually under 12 months old and can be easily converted to cash.  It includes cash and cash equivalents, accounts receivable, and inventory.  Inventory is further subdivided in raw materials, work in process, and finished goods.

• Non-Current Assets includes machinery, computers, land, and buildings as well as intangible assets like goodwill, brand, and patents. Also included in this group is depreciation which represents economic costs over the life of the equipment.
• Liabilities are listed in two groups: current and long-term. Current is long term debt that does not come due within 12 months.  This includes car payments...
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Income Statement

The Income Statement is a picture of the process - business conducted over the month. It is also known as the Profit and Loss Statement or P/L. It tells the business owner the level of profitability over the month. This is a critical document for bankers and other lenders to determine if the business is a good risk. It is a picture of Revenues & Gains, and Expenses & Losses. It explains how the Balance Statement changed from month to month.

Cash Flow Statement

The Cash Flow Statement explains the process - how the Income Statement (P/L) created the Balance Statement. It reorganizes the information from the Income Statement into: operations, investing, financing, and supporting. Operations addresses the sources of cash. Investing covers how acquiring assets were acquired to operate and grow the business. Financing is about shares and dividends; most small business owners are not taking or paying dividends during the company’s early stages so this is usually blank. However, pay close attention to this item because if you were attracted by the concept of an employee buyout, it starts here. Supporting covers non-financial transactions and taxes paid during the month.

What You Need to Do
These Financial Statements report the health of your business - useful for making decisions for smart growth. They also figure into marketing decisions, providing data showing which aspects of company operations provide the best return on your investment.

Here are the critical questions these answer as you make the transition from Stage II to Stage III. It is essential before finalizing your foundation for future growth:


Sales and Profit History

• Revenue and Profit performance over Stage II.

Financial Condition

• Assets relationship to liabilities – are assets greater than liabilities or assets less than liabilities?
• Do you cover costs and expenses from just sales revenue during the period?

Products/Service

• What are your Products/Services market position and amount of market share?
• Are your Products/Services proprietary or generic, easy or hard to copy?

Facilities/Equipment

• When was the latest upgrade (what is being depreciated?) to your core technology or products/services?
• If you are leasing major facilities and equipment – are the leases transferable?

Clients

• What is the average lifetime of clients? Average lifetime value of clients?
• How many current clients do you have and what is their% of revenue?
• Do you have a CRM to manage marketing and sales?

My top 10 Tips for achieving reliable month end reporting within 2-3 days of the month end.

1. Put a plan in place
2. Work with your CFO to ensure you are on the same page
3. Set the rules for the Finance team
4. Ban Spring Cleaning
5. Avoid late adjustments
6. Avoid high processing of accounts payable (AP) invoices at month-end
7. Early closing of the AP ledger and accruals
8. Early closing-off of accounts receivable (AR)
9. Early capex cut-off
10. Early inventory cut-off

Next Show
Episode F3.003: The ABC of Rocket Ship Accounting

Written by: Russell Colbourne


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