88% of business failure is due to reasons within the control of owners or directors. Most worrying, is that the number one reason reported is a lack of regular reporting and financial management. Have you ever wondered why larger businesses post “half yearly results”, “quarterly results” and “monthly results”? Does it really matter to anyone? Who uses these “results”? Many small business owners only get their results to keep the tax man happy – sometimes up to nine months after the end of the financial year. Effectively, the information being reviewed can be up to twenty one months old. So what does all this mean and how does this impact on small business?
The underlying reason why successful businesses have regular reporting systems is to assist managers to operate a more efficient business and leaders to make more effective decisions. Posting regular results allows business owners and managers to review the performance of their business more often and make any necessary adjustments in a timely fashion. A 2% reduction in the Gross Profit Margin of a retail business can lead to a huge reduction in the cash position and net profit of the business over twelve months. However if this is detected in a more timely manner (whether it be monthly or quarterly) the business owners and managers can take immediate action to remedy this issue.
The review of businesses over many years shows that each and every business has both good and poor periods. The better businesses merely detect the poor periods sooner and take quick decisive action. This means that their poor periods are shorter and their good periods are extended. There’s no genius in this – there’s just consistency and discipline from the business owners who commit to reviewing business performance regularly.
Many successful business owners only take a cursory view of the financial accounts prepared on a regular basis. Rather they look at the underlying Critical Drivers that impact business results. To reach this point the business owners must create and develop a rigorous and trustworthy financial reporting system – allowing them to view summary reports with confidence in the supporting information.
Creating these systems is not difficult and most accounting packages, when used correctly, can provide much of the information business owner’s desire. The key is to work out what information will assist the owners and managers in operating a successful business. It is generally worthwhile to contact your accountant or advisor to ensure that the information being provided by your accounting software is reliable and assists you in achieving your business objectives.
If you would like to further discuss your business performance and the reporting procedures currently used to make your business decisions you can contact us at McMahon Osborne Group on 03 9744 7144.