by Laurie Griffith
It’s May and many business owners have just filed their 2014 tax returns – some were surprised by their tax bills and by their business results for the previous year. By now, four months of 2015 are already gone. Do you know where your business stands? If not, it’s time to take a look at your timelines to close the books and prepare financial statements and reports each month.
Monthly financial statements are a critical business tool. When coupled with key performance indicators, timely monthly financials can provide the information needed to take action to plan for and address items like cash flow and financing needs, debt repayment requirements, pricing and profit margins, and taxes. Some of the key financial metrics and performance indicators are:
- Gross profit margin: the percentage of money remaining after you pay the costs to produce your goods or services sold.
- Net profit: your bottom line and what’s left for the owners.
- Current and quick ratios: indicate your ability to pay what’s due.
- Days sales outstanding: Tracks the time it takes to collect the sales you’ve made.
How Quick to Close?
Recognize that the use of the financial statements for the first 11 months of the year can be different than for year-end, and it’s better to get good, usable, timely information than to wait for everything to be perfect.
Aim to close the books five to 10 days after month-end. The first step is to set a schedule and gain buy-in from all parties having a role in the close. Identify key milestones and assign tasks with due dates. Determine who owns which data and who depends on it to report the numbers; ensure that underlying data is sufficient to provide the information you need to run your business. Identify steps to take during the month to avoid delays at the close.
For example, if you carry inventory, do midmonth or cycle counts and reconcile balances before month-end. Manage your billing processes to get your invoices out the door no later than one to two business days after the service or shipment; as side benefits, this will speed up your cash flow and your monthly reporting. Banking transactions are online and accessible immediately and throughout the month. You don’t have to wait for the mail to bring your monthly bank statements. Set cutoff dates; if vendor invoices have not yet come in, estimate those costs. Many transactions can be reported on a one-month lag.
If you have established key metrics and track them on a monthly basis, you can review the monthly trends to evaluate the reasonableness of your month-end numbers as you assess your performance. Outliers can indicate an error in your books because of an unreported transaction, a missed adjustment or a problem in your business.
A word of caution: Don’t go back and adjust prior months. Where you have made estimates or identified necessary corrections, book the adjustments in the month the information is available.
Although year-end reporting requires greater precision, you’ll benefit from the steps taken to create timely and accurate monthly financial statements.
Learn more about how businesses use accurate and timely financial reporting to drive results during our upcoming Sharp & On Point Speaker Series from 7:30 to 9:00 a.m. Tuesday, May 19, at the Lodge Des Peres. To reserve your seat or for more information, visit www.sharpandonpoint.com or www.lopataflegel.com.
Laurie Griffith is a principal at Lopata, Flegel & Co. Accountants and Management Consultants. Join us at the free monthly Sharp & On Point Business Advisory Speaker Series from 7:30 to 9:00 a.m. the third Tuesday of every month at the Lodge Des Peres. Learn business strategies you can immediately put in place to point your business in the right direction. For more information, visit www.sharpandonpoint.com.
Submitted 8 years 364 days ago