Make every report perfect with these 4 “F” Factors
Are your reports:
* Badly Laid Out?
* Hard to Interpret?
* Difficult to compare or see changes over time?
Do they deserve a big F for Fail?
Designing Perfect Reports
A perfect business report is useful, it provides quick and easy access to the most important information – the key facts you need right now to understand exactly how things are tracking” – at a glance, plus it enables you to dig down into key details about causes and timing etc.
A useful business report answers three key questions:
- Identifying WHERE there are differences to what was expected/predicted
- Understanding WHY the difference arose; is it permanent or simply due to some typo or timing anomaly
- Indicating WHAT needs to be done – either a correction of your prediction or a correction of your activities to re-align the outcome with the prediction
Unfortunately many business owners work with generic reporting layouts – despite the fact each and every one of these people will then declare their business as far from generic – relying on the auto-produced reports, generated from the system’s standard General Ledger/Chart of Accounts. This oddly seems to apply to both big and small business – I have seen both Quickbooks and SAP implemented without anyone giving a second thought to the structure of the ledger or the information needed by management. These systems are designed for ensuring compliance requirements are met.
Compliance is important, don’t get me wrong, but to calculate taxes an Accountant only needs to look at the final number at the bottom of a Profit and Loss Report (otherwise known as an Income Statement or P&L). Their job is to ensure the final Profit figure is correct…. If the rest of the P&L is a hotch-potch of headings and bad labels it doesn’t affect their ability to do the tax calculation – as long as the total at the bottom is accurate, that is all they need.
A perfect report will drive good decisions
Every Business manager needs the right financial details in the best possible shape for quick and easy review, interpretation, and action.
Designing Perfect Reports takes these 4 ‘F’s into consideration:
1. FUNCTION – Useful Information
Step 1 – Think about what is the most important info for your business?
What is important can be worked out by answering:
- What kind of business do I have and how does it operate?
- What is the most important information for my business right now?
- What information do I need to know to help me reach my current objectives?
Standardise your wording to make the report easily understood – Jargon is the biggest enemy of clarity.
“Bundles” make key areas of your report easily recognisable. Any number that is generally more than 5% – 15% of cost should be appearing on your Profit and Loss Report (Income Statement) as a separate line item; and items less than that get summarised into bundles… What this means is if any of your account totals are very small, rather than list them out separately, or mush them all together in “General Expenses”, bundle them with other similar small costs instead. For Example:
- Staff amenities, training, entertainment = STAFF CARE
- Postage and Couriers, = DELIVERY
- Travel, and Motor Vehicles = TRANSPORT
- Rates, Repairs and small assets = FACILITIES
What you bundle will depend on the size of your business, and the relative size of the costs – the above examples would most likely apply to a mid-sized business – the key here is to only bundle costs that are both similar and very small.
2. FORM – Useful Layout
Step 2 – Think about what is the best way to express Business operations?
The outcomes here will depend on the flexibility of the software you are using – but even a simple excel sheet can be setup with sub-totals and summaries. In larger systems like SAP General ledger codes can be mapped to total within headings, but it remains better to also group codes as like with like – it makes the details easier gloss through.
Don’t forget Step 1– whatever is most important should be most obvious!
Start with Revenue and consider flagging separate types of revenue by allocating several different lines, some headings you may consider including are:
- Sales – Do you have a variety of brands, products, or services with each needing to be visible? Or, will just one line, with everything jumbled together, be sufficient to clearly understand your sales?
- Returns – do you have a lot of returns and refunds for your sales? If so, it might be appropriate to show these as a separate line (instead of simply removed from the reported sales total – which is the default for most accounting systems).
- Outlets – Do you have a variety of Locations, Stores, and Customers to track, or will just one line be satisfactory?
Then move onto Expenses and consider if you simply want an alphabetical listing or a layout that more directly groups like costs:
- Direct Expenses are related directly to manufacturing and stocking goods/services for sale. For every unit sold there is a clear connection to the amount of direct cost involved to enable that sale. If you have decided to split your revenue, then it is often helpful to split your direct costs in the same way, enabling profitability to be assess by location, product line or sales person too.
- Indirect Expenses are for operating the business as a whole – e.g. receptionist’s salary. For every unit sold there is a small unconnected portion of these cost involved – if you sell nothing, these costs arise regardless.
3. FEATURES – Useful tools for Investigating
Step 3 – Think about what summaries, comparisons and percentages are relevant?
Features enable you to see what you want when you need it so that you can really begin to understand the story your P&L is telling you.
Ideally, you wont need to review all the details all the time. Getting to a point where you can have a quick look at a summary to pinpoint if anything needs further detail and investigation will focus your efforts where they are needed most.
There are two types of comparisons; Direct Comparisons and Proportional Comparisons.
Direct Comparisons: where one number is directly compared to another. This is most common when comparing different periods against each other such as ‘this year we made $100,500 in Sales versus only $85,200 last year’ – which translates to ‘we are selling quite a lot more this year’. If this is a weekly report, include two prior weeks, if it is a monthly report for July include June as the prior month PLUS include July from the prior year. Play around with the comparatives, cycle through several different comparisons periods:
- Week 1 – This week v last week
- Week 2 – This month v last month
- Week 3 – This week v this time last year
- Week 4 – This month v this time last year
and then start back again.
Proportional comparisons: a relationship of one number against another with respect to relative size. This is most commonly expressed as a percentage. This is a really effective way of gauging performance because percentages relate two, variables to each other.
Percentages are easy – all they say is ‘Electricity costs equal 2% of Sales’ which translates to ‘for every $100 dollars sold $2 is spent on electricity’ or ‘for every $2 spent in electricity, we need to make $100 in sales’ (these are the same thing expressed in different ways).
Total sales is a useful figure to know, but percentage of total sales per sales person enables you to highlight strengths and weaknesses to lead improvements. At a minimum your report should automatically include the following standard Performance percentages:
- Gross Margin percentage
- Profit Margin Percentage
And ideally you should also be able to include a column for % Sales.
Familiarity and comparison will reveal trends; trends will enable you to quickly able to spot something odd and investigate (it may end up as a simple coding error), or react effectively to a price hike – best quickly change suppliers or increase your own prices, instead of bemoaning a profit drop several months after your suppliers increased their prices.
4. FEEL – make it look lovely
Step 4 – Think about what irks you in your reports?
If your system allows it, and many do, spend a tiny bit of time making the fonts nicer, and the layout sexier! If you have an allergic reaction every time you see Times New Roman font, then you are most likely never going to look any further into your details.
Formatting is an often overlooked part of creating great reports – but can greatly add any users level of dis-inclination.
Ideally, if you are running an SME you will look at the summary report every week and all the details monthly. It should only take 3-5 minutes to run it and check it and the benefits are exponential.
(If you don’t know how to run your own P&L Report as and when you need, I challenge you to ask your accountant/bookkeeper/assistant/advisor to show you how this week – the extra knowledge at your fingertips whenever you want will be very inspiring)
If you are a smaller business and do your own data entry – then discipline yourself to summarise your expenses into the same format each month/quarter; creating a standardised information base from which to compare.
Designing perfect reports assumes you have already overcome the very obvious issue of:
“rubbish in = rubbish out”,
and are confident that the information basis for the report is being entered accurately and in a timely manner. It is also important to “get active” with your reports – making a point to USE them rather than simply READ them which is detailed here – Help your Reports help you more.
Make a mock-up report first, then run that draft past your bookkeeper and/or accountant before you make changes to your accounting system’s general ledger, formats etc. It may also be wise to have them do the ‘fiddly’ part of the re-arranging – even if it costs you a small amount of money for them to make the changes, it can save you a larger amount of money if they have to “re-fix” things in the future.
Your Reports are not locked in stone; they should evolve as your needs change!
That isn’t to say that your data entry and collection should vary frequently. If you capture as much information in as granular a way as possible it becomes quick and easy to construct simple business reports that follow these rules and provide critical and current decision-making tools.