OK. “Saviour of the universe” might be putting it a bit strongly.
But it can certainly pull you out of some sticky holes. And, most importantly, give you extra room for manoeuvre when you need it.
What am I talking about? Well Flash Reporting, of course.
Flash Reporting
In case you’re not familiar with the term, flash reporting is the technique whereby a “first look” of the monthly financial results is available within 24/48 hours of the books closing at the end of the month.
In a lot of organisations, it takes 2-3 weeks to produce the previous month’s accounts – and I’ve seen some where “last month’s accounts” were not available until almost the end of the following month, nearly 4 weeks after the month they relate to had ended.
Especially in this day and age, that really isn’t good enough.
Ask yourself: if there was a big problem with your business finances, would you rather know about it in 24/48 hours, or are you happy waiting the best part of a month before you even find out there’s a problem, much less start to do anything about it?
Well, unless you’re insane, the only credible answer to that question is 24/48 hours, isn’t it?
But there’s a problem.
For very good reasons, a lot of checking and double-checking goes into preparing a full set of monthly accounts. After all, this is the sort of thing you want to be as close to 100% accurate as possible.
But checking and double-checking takes time. And before you think that AI can do that, it can’t. “Checking and double-checking” doesn’t just mean doing the maths – accounting systems already do the maths perfectly well without the aid of AI.
Rather, checking and double-checking is more of an investigative process where your CFO makes sure that all the elements of the story “add up” and there are no inconsistencies which might need further investigation.
This often means comparing performance in several different areas of the business and unpicking what might have happened, so the CFO can satisfy themselves the accounts are an accurate picture of that month’s performance.
For example, a record month in sales, but the quietest month on record in the factory is, on the face of it, inconsistent. And that should trouble your CFO.
Although, on investigation, it might just be that you shipped more product than usual from stock this month, or that a large part of the sales were some sort of “pass through” charge where you bill for a third party’s product or service which forms part of the “complete package” you sell to clients, even though it takes no time in your factory to make.
However no self-respecting CFO would close that month’s accounts until they were happy that they could explain why those inconsistencies had arisen and were very comfortable that the accounts would stand up to scrutiny by the board, the auditors, and the investors.
Time isn’t on your side
At some level, of course, everyone running a business understands the need for the checking and double-checking. But, in the past, the idea that financial results were not available for several weeks after the month-end meant the Finance Department sometimes acquired a reputation for being “unhelpful” or “not responsive enough to commercial pressures”.
It’s one of those “lost in translation” scenarios. For an accountant, accuracy is, like cleanliness, next to godliness. And it’s pursued with the same zeal you can expect from someone pursuing a holy mission.
In its own world, there’s nothing wrong with prizing accuracy above all else. It’s wise. Commendable, even.
But outside the Finance Department it’s probably the least welcome trait of a top-notch Finance Team.
So, in the last dozen years or so, a fashion for “flash reporting” has crept in so that the wider business can get a quick fix on the financial results for last month and get on with the current month, even while the Finance Department continues with its usual round of checking and double-checking prior to the final “official” accounts being released.
The quick fix
There is a trade-off, though. A quick fix on the monthly results will never be as accurate as a final set of accounts. The trade-off is that you get some slightly less accurate information almost instantly, instead of having to wait 3 weeks for the 100% accurate stuff.
When flash reporting first came in, most accounts teams thought this was crazy. Why wouldn’t you prefer more accurate information over less accurate information?
Well that’s because they tended to miss the wider business benefits of having 95% accurate information three weeks earlier – information that helped the rest of the business outside the Finance Department stay light on their toes and respond in the best possible manner to news, both good and bad, more or less as it happened.
Outside the Finance Department, speed matters more than accuracy (as long as the flash report isn’t out by much from the final reported accounts). That’s because the rest of the business tends to manage itself directionally, not accurately.
The sales team needs to know if it’s a busy month or a quiet month, for example.
If sales were 65% of target, the sales management isn’t going to do anything much different to what they’d do if sales were 60% of target of 70% of target.
That +/- 5% is irrelevant to the course of action the sales management team will be taking, even though their Finance Department will be obsessed with determining that the definitive number is 63.5% of target.
By getting a flash result 3 weeks before the definitive 63.5% number becomes available, the business can take action 3 weeks sooner, and almost certainly get the results 3 weeks earlier as well.
I’m a fan
I’m a big fan of flash reporting because it helps the business take action faster, and that’s almost always a better idea than taking action later.
But for flash reporting to work, it needs to be pretty accurate or you risk the business working on entirely the wrong problem for 3 weeks, and then flip-flopping back into fixing the right problem after that month’s accounts have been finalised. That is not a recipe for a well-run business.
To do flash reporting well, you need really good systems in place.
Not so much accounting systems, although you need those too.
But systems so you know what’s really going on in the business, because that’s what enables you to do at least an element of the double-checking you would normally do after the month-end close in time for the flash report.
And by systems here, I don’t necessarily mean IT-based systems, although that might be part of it.
But you need to be talking with the sales team regularly – not just the sales managers – to get some idea of the deal flow, long before it hits the formal reporting systems.
You need to walk through the factory regularly and assess how busy is it. Are machines cranked up to full speed or idle? Has the same four pallets of half-finished goods been in the same spot for the last three days, implying there’s a bottleneck in production, perhaps? In the loading bay a hive of activity with trucks going in and out more or less constantly, or is it like a wasteland in there most days?
That’s the information you need to do a reliable flash report, to within a 5-10% accuracy. And while systems can tell you some of the information, fundamentally you need a feel for business activity you’ll never get from a spreadsheet or a report from your MIS.
Your “feel” is doing the sense-checking job for the flash report that represents the equivalent of the “checking and double-checking” does for the formal monthly accounts. While those four pallets of half-finished goods might not, in themselves, make a difference to your flash report, noticing them means your eyes will be peeled for other signs of bottlenecks in production which might mean the factory is running inefficiently this month, with possible consequences in terms of sales volumes.
Of course, you can just prepare a flash report mechanically from the numbers available to you, but they tend to be wildly inaccurate and not that helpful for business decision-making.
We have seen a version of this recently in both UK and US government statistics, where their equivalent of a business’s “flash results” have been subject to huge revisions a few weeks or months later.
That’s because government statistics are, perhaps inevitably, prepared purely from numbers on an MIS report or a spreadsheet.
That’s “objective”, because it’s factual. But I would argue that being factually accurate about a set of inevitably inaccurate numbers is not really a positive move in financial reporting.
And that’s true at a company level as well as at a national level.
Even though, as a business, you might be prepared to trade a little bit of accuracy for a whole truckload of immediacy when it comes to financial reporting, that doesn’t mean that a wildly inaccurate “early peek” at the month’s results has any benefit to your business.
Fast, but inaccurate reporting is no better – and probably worse, on balance – than slow, but accurate reporting.
Even if the report is “objective”, because it was prepared from the numbers which were available at the time.
Done well, flash reporting can be the saviour of your universe.
Done badly, it can propel you towards a financial black hole faster than you can say “gravitational pull”.