The question implies there is one answer to this question being a “yes” or “no” or, then again, perhaps a “one size fits all” approach? In reality reporting is not a cost free activity and, therefore, the frequency and scope should be determined by the commercial imperatives of the business.
Here are three ways to determine how up to the minute your financial reporting needs to be.
1) Price Volatility – some sectors experience high levels of price volatility.
The greater the level of volatility in your business model the greater the need to manage that volatility. For example if are involved in commodity trading you will want an instant picture of the current market price for the commodity together with your trades and any uncovered positions.
2) Business Cycle – the shorter your business cycle the more likely you will need day by day reporting or even minute by minute reporting.
For example, if you are engaged in potato farming with a growing cycle of 3 months the reporting cycle does not need to be daily! Conversely if you sell high volumes over the internet through a fulfilment house and automated supply chain you need minute-by-minute reporting of activity.
3) High variable cost – if your business has a high level of variable costs, perhaps sufficient to turn a period’s profit under normal circumstances into a loss, more frequent reporting will allow this to be managed.
For example if you are running an events catering company you would need a firm grip on the costs (and revenue!) for each event on a day by day basis leading up to the event being held. This would enable the profitability of the event to be monitored.
Whichever approach to the frequency of reporting is taken the following points should be borne in mind:
- It is important that the reporting tracks the key drivers for the company. Reporting a metric that is not closely aligned to the overall success will be as useful as not reporting at all
- Reporting should be automated to ensure accuracy and speed
- Reports should be concise and user friendly, for example colours and pictures work more effectively than columns and rows of numbers
Getting the reporting and frequency of reporting right does take time but it is worth the effort, because it gives your leadership team the tools to make informed decisions about strategic as well as operational questions. This is imperative to ensure you are guiding your business and people towards the growth you wish to achieve, whilst at the same time making sure you don’t overstretch either.