This requires complexity up front for simplicity and clarity on the backend. As a result, you’ll easily be able to answer the hard questions bankers and investors ask in order to provide funding.
You do this by designing consistent length, semi intelligent naming and numbering schemes for:
Think about setting up product lines, departments and divisions to segregate your reporting by natural divisions in your business.
Use a 4- or 5-digit general ledger numbering system with room for future growth between account numbers.
Put more detail into your chart of accounts than your accountant wants but design your financial reports to easily summarize data. You need to be able to switch from a detailed to summary look at the touch of a button.
This drives future scalability.
Most accounting departments go thru the ancient ritual of a month end close and take a couple of weeks to a month to report the results. In that time, opportunities and issues that you should have known about, pass you by.
Focus on doing daily and weekly tasks so you know where are at least weekly.
A great mechanism to do this is preparing a 13-week cash flow every week. This forces you to look at what customers owe you, who you have to pay, and to evaluate if your sales pipeline is adequate.
As a startup, it’s important that you invert the normal order of review of these 3 key financial reports below. Most people rush right to the income statement. As a startup, cash is king, and you should start there.
Statement of cash flows – Where is my cash coming from and going?
Balance sheet – Your snap shot of what I own, what I owe and what I have invested.
Income statement – My current state of profitability over some measure of time.
The benefits of designing and implementing a KPI Driven Financial Reporting System keep giving as your company grows.
Clarity Management is able to help you develop one for your company.
Lorry Rifkin, CPA from Clarity Management, LLC has 35 plus years’ experience designing and implementing KPI driven financial reporting systems to drive profitability. If you missed it, check out Part 1, “Why You Need A KPI Driven Financial Reporting System.” If you have any questions, please email Lorry at firstname.lastname@example.org or call 414-702-6845.