Accountants love to compare numbers. It’s trained into us early on in our careers. Call it analytical review and you’ll always have something to say at Board Meetings.
Don’t misunderstand me, I love comparing annual financial performances as much as the next accountant. I’m just not sure it should be a once a year treat.
Management reporting by its nature tends to focus on the monthly and cumulative annual results. If we’re sensible we will compare it to budget and get to explain why it is up or down against target.
What we don’t do enough of though is compare the year on year (YOY) performance. YOY looks at the results for the 12 months up to present and compares it to the 12 month period before that.
Looking at the monthly numbers and comparing it to budget are important but if you want to understand the long term trends in your business nothing will beat looking at the YOY performance, especially if there is any seasonality in your business.
Changes in revenue, staff costs and overheads really pop out when you look at them over a longer time period. Individual months can be affected by a single issue, project or unexpected cost. Over a year the importance of those issues get flattened out and you are left with the trend.
It is by focussing on those trends and the reason for them that management reporting can come alive by linking the numbers to the reasons. With an understanding of the reasons comes an opportunity to do something to improve future performance.
Whether it is a change in revenue from an activity or sector; additional resource cost or an increase in property costs it becomes clearer and more understandable when you compare the effect over a rolling 12 month period.
If you want to lift your management reporting out of the routine and link it to the real operational performance of the agency then start looking at the longer term trends affecting your business. Start thinking about what you need to do now to affect the figures in a years’ time.
The author, Simon Collard, is a chartered accountant with 20 years’ experience running and advising on Agency finances. If you’d like to improve your agency management reporting, talk about ways to increase the long term value of your agency please email firstname.lastname@example.org.