Five Reasons Your Year End Financial Statements Are Useless

Happy Monday everyone!  It is the middle of January and we are starting the third business week of 2018 and the third fiscal week of the year – if you are one of the majority of companies that has a December 31st year end.  If you are in a top quartile company, you closed your books a week ago. If you are in the middle of the pack, the median time to close is seven or eight days.  And for bottom quartile companies it takes 12 days or more.  Hang in there if that is you – you are getting close!

Closing your books faster has many benefits but fast doesn’t always mean better.  What about the quality and completeness of your financial statements?  And what additional reporting accompanies those statements?  You’ve spent days or even weeks closing your books and have worked so hard.  But all you get are blank stares and frustrated comments from your stakeholders when you share the fruits of your labour.  Here are five reasons this may be happening to you and why your financial statements may be virtually useless:

You Prepare Consolidated Statements with No Explanations

Financial statements tell a story.  How did your business perform last year?  Are you growing or is your business in trouble? Are you collecting from your customers on a timely basis?  Are you able to pay your bills as they come due?  Is your cash flow coming from your operations or a loan that you had to get?

Answers to these and other questions aren’t usually obvious from the statements alone, especially when there are complex accounting policies involved.  You need to explain in easy to understand terms what story the statements are saying about the business.  Explain the changes from one year to the next and what these changes mean for the year ahead.

It’s Not About You

You Aren’t Focused on What Your Users Need.

As financial statement preparers we are often so focused on getting the work done that we don’t think about what our audience needs. It’s not about how you applied the new revenue recognition standard (although you do have to get the accounting right!) It’s about understanding your audience and users and what they want and need from your statements.  Who are the users of your statements?  And what are they looking for from them?  If you are a public company, your investors want to know if they should continue to hold your shares or perhaps buy more.  If you are looking at buying a competitor you need to show the bank that you can carry additional financing.  If you are regulated, you need to show that you are following relevant rules.

Provide the commentary that highlights what your users need to know!

There is No “So What?”

One of the key purposes of financial statements is to provide predictive value.  You should be able to see what is likely to happen next based on what happened last year.  The value in these statements is analysing the trends you see from what already happened and then using this knowledge to change behaviour in the future.  So often this doesn’t happen.  Statements are provided with no insight.  Just complicated numbers.  This is not useful for anyone and especially not your boss or other users of your statements.

If you want to be a value-creation partner with the leadership team and not just a back-office cost centre, you need to turn data into information and provide advise on what needs to change to make your business better!

There is No Accountability

Every line on your financial statements belongs to someone or a team of people and most of them don’t belong to finance.  You are the messenger, but the message belongs to the owners of each line item.  If your sales haven’t met your growth targets, it is the responsibility of the sales team.  If your production costs are too high, it is the responsibility of manufacturing.  If you are spending too much on promotions, then talk to the marketing department.

So often the blame sits with the financial statement preparer and not with the source of the numbers.  There must be a mechanism in place to get detailed variance analysis from the owners of each line item with a plan that they are held accountable for,  to make any required changes going forward.

They Take Too Long to Prepare

Sometimes it can take so long for the year end statements to be completed that it feels like you are reporting on ancient history.  The purpose of financial statements is to provide information that is relevant for decision making.  If it takes weeks or even months to be released it is no longer relevant and decisions must be made without them.  Look at your processes, people and systems to see where the bottlenecks exist that are slowing you down and fix them!

If you would like to learn more about why your statements may be useless and what you can do to improve them, join us for a free webinar on Wednesday, January 17th at noon Eastern.  Click Here to register!