When do you know how you did last month? A reasonable time to have completed financial statements is between the 10th and 15th calendar day of the month. Another way to think of it is 5-10 business days. This can vary depending upon company complexity, staffing levels, critical pieces of information from key vendors, and a few other factors. In smaller companies, the CEO can even be the gating factor as they might control some critical piece of information and just don’t make closing the books a priority. I always find this frustrating.
To be clear, I’m talking about a company of reasonable size that is doing accrual accounting. “Financial statements” (note the “s” on the end) also mean all three (income statement, balance sheet, and statement of cash flows). If you’re tracking something incredibly simple (a single rental property for example), then far sooner is definitely possible. In fact, it should be expected. But otherwise, if your team has financial information to you on the 1st, well, I’d be a bit wary because they might not have all of the critical information and could be skipping a few steps.
In some cases, I can do an early estimate as soon as the 1st but that’s about it. For example, I have a client where I get a canned report at midnight on the last day of the month with sales and gross profit dollars. Payroll is recorded real time. Rent is mostly fixed and already recorded except when we have to calculate a percentage of revenue due to the landlord each quarter. The biggest wild card is advertising which takes a few days to come through. Other expenses are relatively small and as a group are fairly stable month to month. In a case like this, I can give a good early estimate of the month’s results on the 1st.
If you’re not looking at financial statements until deep into the following month, then something is wrong and you need to uncover the source of the delays. They can and should be fixed.
I was recently working on the acquisition of a distressed company and in early November was told that financial statements weren’t available beyond the end of last year. No wonder they’re in trouble.
And while we’re on the topic, last month doesn’t change. Once the books are closed, no further changes should be made absent a conversation with the CFO and perhaps the executive team. There are times when I will amend a prior period, but that comes with full disclosure and is usually done with an eye toward better comparability for the same month next year.
While financial statements aren’t forward-looking, they are a reflection of the very recent past and should be used to inform management about what is working and what is not. Armed with this information, the leadership team can take action.
Show me a company that has late financial statement reporting, and I’ll show you a company that could be performing better.
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 [email protected]
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Ken Homza
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