Improving financial statements and management accounts

When it comes to financial information, the past is a reliable indicator in determining how the enterprise will perform going forward.

Financial Statement, Account Management
By Hitesh Dullabh

For many entrepreneurs and smaller enterprises, the financial statements (including monthly management accounts) present a complex and boring aspect of business.

 

Understandably so – who wants to look at a whole bunch of numbers that happened in the past which might never repeat itself?

 

Although the past does not necessarily indicate what happens in the future, when it comes to financial information, it is a reliable indicator in determining how the enterprise will perform going forward. 

 

Most entrepreneurs shy away from the detail of their financial information due to either:

  1. a lack of understanding about the complicated aspects of financial statement.
  2. a general bias towards the financial statements as a “bean counting exercise”; or
  3. the inherent traits that come with being entrepreneurial, who tend to focus on the sale of products/services rather than the business operational processes.

 

Using reports and applying analytics to financial information, (if done correctly and applied specifically) can elevate the insight established beyond the administrative process and performance. 

 

Financial statements (including, monthly management accounts) tell a story of what the enterprise has done and how well it has performed over the last year (or month, in the case of management accounts). 

 

This story, like any other, can only be fully comprehended by those who understand the language it is written in. And financial information is written in a completely different language to any spoken language on the planet. 

 

Naturally, only someone who understands the language proficiently can read, comprehend, and effectively translate the story into a summarised medium that the entrepreneur can digest. 

 

The easiest medium for most people to understand financial information is when that financial information is presented in a visual form, including graphs or charts.  These include metrics and trends that intuitively make sense.

 

The “translation” process is an entire skill on its own.  A great “translator” can process this information and present it in a way which is accurate, relevant, and informative to entrepreneurs and directors to make effective decisions.

 

Processing and analysing financial information need not be a daunting task or left as tick-box exercise for tax and annual return purposes, nor do you have to do it alone. 

 

Having the right person, proficient in these aspects, work with you can lead to significant insight and allow you to implement beneficial change in your enterprise.  Get the right person to tell the story of your business in a way that is easily understood.

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About the Author

Hitesh Dullabh is the director of Evimeria Consulting. He is a qualified Chartered Accountant of South Africa and is in the process of completing his Masters in Commerce (Corporate Finance and Valuations) at the University of Cape Town.

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