By Mike Bedel, CPA, MBA, CGMA
Partner, Director of Audit & Assurance Services
Professionals who value and proactively manage their time have learned to manage the non-stop flow of e-mails by only checking their inbox at set intervals throughout the day. The idea of only checking in at regular times helps professionals focus on the task at hand while allowing them to still respond to important e-mails in a timely fashion.
Financial reporting is not so different.
Most successful business owners have established a frequency to review their financial reporting. For many businesses, this takes place on a monthly basis. However, there are some circumstances where it may be valuable to increase or decrease the frequency of financial reporting.
Some companies – especially in the retail sector – have been reporting on an increased frequency for some time. Established franchises with daily financial reporting systems are able to generate a profit and loss statement for each day of the week. These systems usually involve a point-of-sale system that captures detailed information and typically is found in a cash basis business-to-consumer setting.
(In fact, many retail companies don’t use calendar months for financial reporting at all – they rely on a financial calendar that consists of 13 four-week periods, usually starting on a Monday and ending on a Sunday, so as to prevent distortion from the number of days or weekends in a calendar month).
In other business models, though, daily or weekly financial reporting doesn’t make sense. For example, a contractor who bills clients at the end of each month for progress on a project will see no change to their revenue reported until those monthly invoices are submitted. Running weekly or daily financial reports will not provide a clear picture of progress and only prove to be a waste of paper and/or storage space.
Similarly, an organization that utilizes an outside payroll provider to generate bi-weekly or semi-monthly payroll may not see those personnel costs recorded to their accounting system until each payroll comes through if their time reporting system is not directly linked to their financial reporting system. Running daily or weekly financial reports will not reflect the changing payroll costs until it is entered on or around payday.
The progression of some accounting software packages offers the opportunity for real-time reporting, which may seem enticing. Financial professionals and business owners need to weigh the value and benefit of increased frequency in reporting against the cost and time incurred to produce and consume those reports.
For a smaller population of organizations, the argument can be made that monthly financial reporting is too frequent. Certain real estate development or rental entities may find that their business process runs smoothly month to month and that quarterly financial reporting is sufficient – especially if their business is founded in long-term contracts and cash collection is not a pressing concern.
As you begin your financial reporting in 2016, consider the frequency of your financial reporting and ask yourself whether it needs to be adjusted. If you’d like some assistance with that decision, please contact Mike Bedel at (317) 613-7852 or email [email protected].