When you think of financial reporting, do you think about presenting business data to the board promptly and accurately? Do you think about the best way company-wide financial data can be rolled up and presented so that it's easily understood, and quickly conveys the most critical results and indicators to the board – financial and non-financial directors alike?
You most likely do all the above. But do you also think of reporting as a two-way street – or to put it another way, a bi-directional process – and loop your operational managers into the conversation?
A picture says a thousand words
The power and impact of being able to present dashboards, graphs and other performance and key indicators as visual snapshots every month cannot be underestimated. And technologies such as Microsoft Power BI have made these visualisation capabilities easily accessible by the financial team at an affordable cost.
This is an important value add and service the finance team can provide to the board. By making insights visual and easier to absorb at a glance, the finance team is speeding up and improving the organisation's overall decision-making and strategy-setting ability. But the most elegant visual representations of data in the world are only as good as the data that they are based on.
The financial reporting bi-directional process
Is your finance team only reporting upwards to the board or is it also reporting back into the business? With the best will in the world, mistakes do get made, especially when organisations get larger and more complex. Finance teams have to tackle more data, both quantitative and qualitative, than ever before, just as turnaround times get shorter and shorter. It's not reasonable or possible to expect your financial team to double-check every entry at posting level.
Instead, who better to check entries and allocations are correct than the cost centre managers who generated the sales or spent the money in the first place? These are the people who are responsible for keeping revenue up, or expenses down, or meeting whatever other KPI is critical that month. They know the numbers and context and have a vested interest in ensuring the financial data for their department or cost centre is accurate. They can quickly and easily spot something that has been incorrectly allocated to their cost centre, data that is missing, or amounts they don't recognise. And hence the importance of recognising reporting as a bi-directional process.
The advantages of a bi-directional reporting process
A bi-directional financial reporting process can unlock additional vital insights from the coalface of the business. For instance, say sales are down at a specific retail store. Is this thanks to the death of the high street and an early warning to accelerate a shift to e-commerce? Or is this because of three months of roadworks disrupting traffic patterns and parking but which are now complete? Only your manager on the ground can tell you this.
It will speed up the entire reporting process. A handful of accountants in the finance team cannot review the volume of data created by a large enterprise in a short period of time. But if you share that job among the operational managers throughout the business it can be completed in a fraction of the time with the same number of finance staff. The finance team will instead be spending their time reviewing the exceptions rather than finding the exceptions. Many hands make light work, as the old adage goes.
A final win is that this level of transparency will further encourage a sense of ownership and accountability among non-financial operational managers, and improve alignment of corporate goals and strategy throughout the organisation.
Reaching the best decisions, quickly
This is the insight, delivered at the right pace, that the board needs to make the best decisions and set the best business strategy. The more correct and up-to-date the board pack is, the better the decision-making will be. And by opening a two-way channel of communication with the business itself, the finance team can increase the accuracy of the information and save time – even in the largest, most complex businesses.
Now instead of taking two weeks out of the month to check and confirm the underlying data, the finance team can take two days to review the data with the business managers and focus on presenting the information and insights to the board.
Data dumps do not support a bi-directional conversation
These time and accuracy gains can only be realised if the underlying financial system is integrated with your reporting system and changes filter through immediately and automatically – whether they are made on the second, fifth or 27th of the month. If finance is exporting a snapshot of the data into a database or warehouse before importing it into Power BI or a similar visualisation tool it shuts down the two-way loop. Any subsequent updates by business managers to the core data in the financial system will not be reflected, and the insight presented to the board will not be the most recent.
By contrast, with the right tools in place, an empowered business team and a free-flowing two-way conversation, there is no reason why even large complex companies can't have a reporting timeline of three days. And then be able to adjust on the fly as the board starts engaging with the numbers and asking questions.
The finance team as facilitator
Instead of simply funnelling information in a one-way direction, the finance team’s role should be to facilitate a two-way process connecting the board and the business. To be sure, the right tools are essential to ensure finance doesn’t become a bottleneck or a blockage, but the benefits of finance’s facilitation role in this exchange are significant.
An empowered, aligned business management team that feels involved in and accountable for their local performance is going to be more successful. And at the same time, this improves the quality and timeliness of the information that forms the bedrock of the board report and then strategic discussions that come out of this, ultimately driving better decisions in the organisation.
As published AccountingWeb - May 2023