Chapter 20
Setting a financial reporting strategy

Now that you better understand how to read and use financial statements — and the varying audiences for these reports — it’s time to develop reports that satisfy the different users. You need an overall financial reporting strategy for your company.

Developing such a strategy is no different from choosing a strategy to serve your various shipping customers. You must look at the needs of each customer and plan to satisfy each of them to the greatest extent possible in the most efficient way, given your resources.

Pick a leader. First, you must select someone to lead the process and give him or her ultimate accountability for achieving the end result. This person should be able to understand the needs of each user and be comfortable with everyone from the entry-level manager to the haughtiest silent investor. That person just might be an outsider.

If you do choose the internal company accountant, pair him with someone who fits this description and who also understands the pressures facing the accountant. This could be the CFO, the outside CPA or a business consultant. It’s important to try to balance everyone’s needs. Without a mentor, the accountant may not be able to do this.

Start with frustrations. At the risk of making the current accounting team a punching bag, start by inviting each user to air his or her frustrations with the current system of reporting. This might be done one-on-one or in a focus group. Simply ask the question: What information are you getting that is particularly important to you in performing your job, and what information are you not getting that you would like to have?
It’s not yet important to prioritize; simply let users sort out their level of happiness or frustration. A pattern will emerge in each group indicating where the reporting system is working and where it’s falling short.

List the key performance indicators. What are the factors that lead to healthy company profits? These are the tasks that must be consistently done months ahead of time in order to have customers and revenue, thus profits, several months down the road. For example, to get 10 new customers in a quarter, the sales department may have to contact and court up to 50 prospects, often months or years beforehand.

Because you’re designing a financial reporting system of the future, why not integrate operational and non-financial measures? At least for internal reporting, accounting is slowly moving away from historical record toward a real-time financial barometer that will allow users of the reports to tell immediately if company financials will reach the goals set in the business plan. Key performance indicators are those measurements that tell you if the company will make a profit, months before it shows up in the numbers.

Visually chart users’ needs. The table on the previous page may help summarize the varying needs of different financial report users.

Set a reporting strategy. Once each group’s needs are identified, begin comparing current company practice with expressed needs, and identifying gaps in coverage. Question any reporting that was not identified as critical, and look for duplication of efforts. Once that’s done, evaluate the various ways to deliver on this strategy. Is a change in accounting software warranted?

There are various company management systems on the market, many of which combine internal and external reporting.
It may take up to a year to re-engineer a financial reporting system. It will be up to your management and financial team to help your company reach the balance of all users’ needs that’s right for you.

In Summary
Establishing a reporting strategy starts with designating someone to take charge of the project. Then ask the various “consumers” of your financial information what they want.