With all of the computing power that has been applied to business over the last 30 years, I sometimes wonder if it has produced any better information!? Yes, we have reams of data but there are times when it serves very little purpose because it is not organized into useful information. As I write this, I can think of two recent examples of companies that produce reports that aren’t of much value. In one case, it was (past tense because it is now fixed) an income statement that was poorly organized and couldn’t produce meaningful customer profitability information. In another case it is (current tense because I just read the report this morning) a summary of weekly activity that can’t be reconciled to resources deployed. Even if one understood this report perfectly, it would add little to understanding the business.
From these two examples, comes the title for this newsletter: “Step One” is to develop meaningful reporting for your business. If you do not have information at hand today, I can assure you that this step will not help your business this week (yes, I said “not”). Generally, useful business information is the result of looking at trends over time and developing an understanding of the relationship between key pieces of information. I think it takes half a dozen time periods (6 weeks of activity reporting and 6 months for income statements, for example) to start to draw meaningful conclusions. But I have almost always found that once you start to look at this information you will see trends and ask questions which will lead to ways to improve the business.
In the first case, we started at the beginning of February and reorganized the income statement effective January 1. When we close June, we will have six months of good data. Yes, the first several months were difficult because it felt like we took a step backwards. We had no trend information as compared to bad trend information previously (even that, I would consider an improvement, however). Bad information serves no purpose other than to distract at best and to mislead at worst. In the other case, we started last week. By the end of July, we’ll have enough information that we should be able to affect the business and have a better result (increased profits) in the third quarter.
One of the reasons that I believe that people don’t focus on better reporting is the lack of immediacy of the result. As I mentioned, it is highly unlikely that working on better reporting this week (the first week of July 2008) will solve any problems before we take our 4th of July break. We tend to be so very short term focused that we spend the majority of our time focusing on the problems of the day as opposed activities that will benefit us in the long run. But that doesn’t mean it’s not worth doing!
Given that it is going to take six months for you to develop good income statement reporting, if you start today, you’ll probably start to identify opportunity areas in your business in three months and have good information by year end. That will allow you to enter 2009 with a strong basis of information and to plan to be more profitable in 2009 than 2008.
Every day that you wait is opportunity (and profits) lost. Don’t delay, take “Step One” today!
If your business could benefit from fractional CFO services, I would welcome the chance to speak with you. Please give me a call at (314) 863-6637 or send an email to
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