Running a business requires owners to be multi-faceted. You need good sales techniques, a handle on the accounts, sound market knowledge, not to mention a hefty dose of optimism.
For companies that have a board of directors to answer to there are even more areas that need covering, one of which is performance reporting.
The purpose of performance reporting is to promote action. A good report should contain all the information necessary to facilitate decision-making at board level.
Whether you have a finance department, a spreadsheet or a great accountant, you’re responsible for making sure that not only is the report delivered but it’s accurate and well presented. You’re reflecting the overall health of your business and it must be unbiased, even-handed and multi-dimensional.
If the board is to exercise its strategic, long-term planning function fully, it needs to focus on more than the business’ current performance indicators. Historical performance ie, how it measures up to past objectives, is a necessary benchmark to cover, but this can be a poor predictor of the future and shouldn’t be the only consideration. You need the full 360º view of the business and that includes the past, present and future. The board should, therefore, have some forward-looking information at its disposal, including trends, projections and business forecasts.
When required to submit a report to the board, it’s not just the content that needs to be looked at, but how the information is presented as well. There are some simple mistakes that can be easily avoided. The following are the most common:
For financial performance, comparing what happens (actual) with what should have happened (budget/plan/rolling forecast), or in some cases what did happen previously (last month/quarter/year), will be valuable.
Presenting a forecast year-end position will focus minds on the effectiveness of an organisation, rather than just its economy and efficiency. Drawing a comparison with your business budget should be one of the key management tools, but the emphasis should be on the future, which can be influenced, rather than the past, which cannot.
Whether it be looking to the future using scenarios and what-if analyses, a quarterly update of forecast results for the trading year, including a cash flow forecast, or a further breakdown of departmental results and how they relate to the overall performance of the company, the quality of performance reporting to boards is one of the key factors affecting companies’ competitiveness in business today.