5 Hallmarks of a Good Financial Planning Report

The woman beside me and I were reviewing the financial planning report and looking at the travel expenses entered in their General Ledger (GL) and in my report. They didn’t match. My financial planning report was in a different format than their Ledger and I pointed out that if we reorganized the cost centres in the GL to match the reporting format, she wouldn’t have to do so much reconciliation.

“That’s true,” she said, “But they keep changing their minds about what they want.” Then she corrected herself. “Actually, they have been pretty consistent since they started that three-year plan.”

And exactly that is the secret of financial reporting: the planning process needs to drive reporting. To give you an overview, here are five hallmarks of a good financial planning report. It should:

1. highlight the organization’s drivers;
2. make responsibilities clear;
3. span more than one year;
4. be intuitive to non-financial readers; and,
5. be brief.

1. Drivers

What critical forces contribute the most to your business? (Hint: If your list has more than 10 items on it, try again.) For example, commodities prices and the foreign exchange market might have a significant impact on the cost of your raw materials, which in turn affects your profit on each sale. Maybe your research department has contributed new products that have led you into new markets and higher sales. Maybe your business is highly sensitive to inflation or interest rates.

Whatever you identify as your business drivers, make sure their effect is front and centre in the financial statements. Don’t bury them in some page 10 inventory schedule.

2. Responsibilities

You should have one schedule that breaks down your goals by the people or department responsible for carrying them out. Often this is done by having a separate column for each one. Every number in the report is someone’s responsibility, so there can be no finger pointing.

3. Multi-Year

Even if you feel that you can’t see more than six months into the future, creating a multi-year plan helps you see the relationships between the different elements of your business. If this is unfamiliar territory for your staff, make them do it anyway. The trick is not to ignore the results when real-life experience makes mincemeat out of your forecasts. Have a Lessons Learned session with the managers and go through the reasons why the forecast went south. Everyone will learn, and forecasting abilities will get better.

4. Intuitive

Good leaders can see through the fog of business and maintain a clear vision of their goals. Good financial executives can grab that vision and express it in financial statements. Some tricks of the trade are:

• Divide your income statement into sections, with subtotals for each driver;
• Don’t cram too many columns of numbers onto one report (no more than 4);
• Put the most important expenses first, and;
• Anticipate the questions and make sure your format answers them.

5. Brief

“Nice analysis,” the Chair remarked to me. “Now get it down to 3 pages.” When he saw the look on my face he added, “If you write three pages with lots of bullets, they’ll read the whole report. If you write more than that they won’t read it at all.” He was right.

In a recent meeting, I was asked for a “one-pager” on an accounting issue. It was too complex for a one-page analysis, but the Chair knew what he was doing. The committee discussed the issue and asked me to provide a five-page analysis. Because they asked for it, they will be much more engaged in the issue than if I had presented the longer analysis first.

If you’d like a professional (Accountant) by your side to help finetune your financial reporting and forecasting, get in touch with us at Energized Accounting.