How to generate a financial report that provides better financial insights

Paper pile - April 2011I was invited to breakfast one morning by a CEO of a food service company. She came to the table armed with an inch-thick sheath of papers, and told me the stack represented her controller’s financial statement.

“This is too much to deal with,” said the successful businesswoman. “I can’t make heads or tails of it. And you know what? I receive a financial report like this every month!”

I told her I’d take the stack back with me, and return with a financial tool presenting the data in an easier-to-absorb format. At our next meeting I handed her the month-to-month worksheet I’d designed and said, “Rather than going through a dozen of those inch-thick stacks every year, let’s take the critical top-side income statements and line them up month-by-month on this one sheet of paper.”

Before delivering it to her, I’d dropped in the April numbers to serve as a guide, with the other columns remaining blank. I told her to give that worksheet to her controller, and have him complete it month by month.

Saving Time for the CEO

I only wanted her looking at the top-side numbers, not all the other detailed figures. I just wanted her to deal with total revenues month-to-month, the gross margin month-to-month, and the total overhead month-to-month. The top-side numbers were what she needed to gain key financial insights.

The worksheet was designed to display the actual numbers reported and the numbers that had been budgeted for the month. She had 25 different operating units, all of them captured in columns on her spreadsheet. She could skim across those 25 columns and quickly see how her company was doing.

As part of this financial tool, I had also calculated a few financial ratios and percentages. She could compare one operating unit versus another, and examine the gross margin percentage. That would tell her how one operation was performing versus the next. The same thing was done with operating costs as a percentage of sales. That told her how each operating unit was managing costs, and whether each one was performing as projected.

Using this important financial tool made the CEO more productive. First, she saved time, because she no longer had to wade through inch-thick monthly reports. Second, she had crisp financial reporting that indicated specific, targeted issues to discuss with management.

Deeply appreciative, she said, “Y’know, after all these years of being in the food service business, I finally understand what my numbers are telling me.”

In my next blog, I’ll explain how this time and labor-saving financial tool can be created for your own company.