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Financial Reporting at the Speed of Business: It’s Possible

Charlotte Cathro

Charlotte Cathro

Internal financial reports are vital to the monitoring, benchmarking, and decision making of a business. Often the most recent report available is the last monthly financial statement. Each month, these reports are delayed with a lengthy and stressful close process. In order for the numbers to provide relevant information for decision makers, they need to be as up-to-date as possible.

With a few changes to how data is accumulated and processed, this can be accomplished.

Managers need to frequently monitor the financial statements of a business. Management oversight is an important component of internal control to ensure that processes are running smoothly. Typically this includes a review of the actual results of the period in comparison to the previous period or an established budget. Reviewing this comparison highlights unexpected activity and may indicate errors or fraud. It may also alter the outlook for future periods, and budgets are most effective when they are flexible and adjust for business changes.

In these economic times, companies need to be able to react quickly to indications of a poor outlook. The business may have bank restrictions for its debt, and will want to monitor the status of these ratios to prevent noncompliance. Cutting costs and scaling back budgets might be necessary to stay afloat. On the other hand, if business results are better than expected, management can use this information to increase investment or expansion. When the review of the financial performance is done well after the period ends, management has less time to make such decisions.

Up-to-date cash-flow information indicates what money is available for use in operations and what excess can be invested or distributed to the owners. Some investment opportunities, such as acquisitions of brands or other companies, may present themselves suddenly and require a quick turnaround. Available cash may also allow the company to pay invoices before they are due in order to take advantage of vendor discounts. However, many companies don’t reconcile their cash to the bank until month’s end, and may not even be entering transactions on a daily basis.

Automation can speed up the financial-reporting process. Transactions that are recurring in the same amount, such as rent, depreciation, and amortization, can be entered in advance. Reversing entries can be set up within the system to reverse the following month. Many organizations are moving from batch-processed systems, which update the financial software on a periodic basis from subsidiary ledgers such as accounts payable and inventory, to real-time systems. These real-time systems process transactions to all related modules immediately. Without the need to post batches and check that they were properly transferred, month-end closing is therefore expedited. Ideally, with these systems, reports can be run daily showing the current financial standing of the business.

Use of the Internet allows for much more up-to-date information. Electronic fund transfers are fixed to be paid on a specific date, unlike checks, which are delayed by receipt and time to clear. Online billing and bank statements allow businesses to keep track of transactions long before they receive statements in the mail. Bank accounts can be reconciled on a daily or weekly basis. Expenses can be entered as soon as the desired period of activity is complete. Businesses should sign up to view activity online for banks and vendors that provide this service.

Some information might not be available within the time frame. For example, bills for less-organized vendors can be received well after the expense was incurred. In order to make sure that the financial statements are as reliable as possible, estimates should be recorded for income and expenses expected to apply to the period. Estimates are acceptable as long as they are reasonably developed and would not change the outcome of any decision-making. A review of the records from the last few periods can be undertaken to indicate what items might be currently missing. Once the documents actually come in, the estimates can be reversed and the actual amounts recorded.

Timely financial information does come with a cost. The reliability of the data should not be sacrificed for speed. In some cases, investment in more advanced accounting software may be required, as well as additional staff or overtime hours for existing employees. However, the increased time in the interim could offset the time required at month-end and year-end close. Both the financial cost and additional stress of providing more timely financial information should be determined and weighed against the benefit it provides.

Charlotte Cathro is a tax manager with the Holyoke-based CPA firm Meyers Brothers Kalicka, P.C.; (413) 536-8510; [email protected]

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