Last week I was flattered to receive an invitation to become a “high-calibre expert” on a US website for supporting business professionals. One question on the site immediately caught my eye – “Are monthly internal financial statements obsolete?” What’s this, I thought, am I so far out of touch down here in Hawkes Bay that I’d missed out on some really exciting new development in the world of business and finance?
I needn’t have worried, as the alternatives (things like KPI’s, Business Intelligence, Activity-based Costing & Dashboards) were felt by most respondents to be useful but should not replace monthly internal financial statements. In practice of course, very few small and even medium-sized businesses prepare monthly financials which, in my view, is a real shame, because old-fashioned and humble monthly financials make a huge difference to business success which can be demonstrated in the very strong correlation between the frequency of financial reporting and business survival:
|Monthly reporting||80% survival rate|
|Quarterly reporting||72% survival rate|
|Half-year reporting||50% survival rate|
|Annual reporting||36% survival rate|
(*) Source: Williams, A.J., A Longitudinal Analysis of the Characteristics and the Performance of Small Business in Australia
So, if they’re so important, why are they not more widely used? After all, now that powerful accounting software is cheaper than a weekend away for two and with so many other benefits (built-in database, timesheets, inventory control, invoicing etc) cost, like it used to be, is no longer an excuse. Let’s look at some of the reasons often quoted and why these reasons are based on false premises:
Oh come on! Accounting software incorporating a full General Ledger (without which accounting software is a waste of time) and inventory control can still bought for under $500. Not buying it may be the most costly mistake you ever make!
The only part that I find clients have difficulty with is reconciling the bank. Now that cheque and deposit books are going out of fashion there are easy workarounds. Otherwise, pay someone to do it for you like your accountant!
My accountant says I don’t need them and that they’ll take care of bookkeeping and GST.
Now there’s a common tale! The only reason he or she is saying that is because they want to maximise their fees!
Whatever happens in my business just happens anyway so as I can’t influence things what’s the point?
If a business owner thinks that (and yes, I’ve met loads!) they shouldn’t be in business and are probably not long for the world of business. Get a job!
We don’t understand our end of year financials yet alone monthly ones
If you want to be successful in business it’s not enough just to be good at your core trade or profession, you need to get to grips with basic financial and business issues. Go on a course, read some books, and get yourself a good accountant who will explain them.
We haven’t got the time
That’s easy, delegate it out.
We concentrate more on the operational side of the business and don’t need to worry about such minor detail
Many previously successful business owners have said this before they went bust!
So there really are no excuses not to prepare monthly financial reports. If there was a book of rules about how to run a successful business (I may write one, one day) they would feature well up the list of key essentials!
If you need help to set-up Monthly Financials in your business contact 0800 ASK NICK or email [email protected].