At a recent one-to-one with one of my Vistage CE group members we were discussing information flow in the business and how it can be and is used to beneficial effect.
I was slightly stunned by his comment in passing that his Finance Director was now managing (I use the word reluctantly) to produce the monthly management accounts six weeks after the month end. (it had been up to eight weeks as the FD fond other things to do which he considered more important)
The sad fact is that management accounts which are six weeks late (in anyone’s language) are frankly useless. The company could have gone out of business while the FD was saying things like “I can’t do it any quicker because we don’t have all the invoices in yet” and similar excuses
The whole idea of management accounts is that they are supposed to assist the CEO in the management of the business (or is that a trifle simplistic?) and six weeks late means that they are, to all intents and purposes, useless other than as an historical record of what happened.
Any action taken as a result of them would be founded on dubious evidence at best and at worst would be positively dangerous. Ask yourself, do you drive a car by looking constantly into the rear view mirror?
So why even bother?
When an FD is appointed or indeed anyone tasked with the preparation of monthly accounts, it should be made absolutely clear that they must be presented in a workable format no more than three days after month end.
All arguments about not having all the necessary documents in hand are specious as the management counts, almost by definition will contain some input which can and should be estimated. If the monthly national statistics for GDP can be corrected a month later, then so can monthly management accounts.
Another of my members mentioned that as they were going through a short term downturn blip, the Finance Director was becoming more and more nervous by the day and was starting to look at sales by the week. When he then started to worry about sales on a daily basis, it was pointed out to him that the business operated long term so please stop it (or words to that effect).
The whole question of the value of monthly accounts is called into question when this sort of thing happens. It also calls into question the role and indeed the attitude of the financial personnel in the business. The fact is that finance does not run the business; it is the product of the business and is a measure of the level of success.
Possibly the most important factor and certainly in these times, is the cash position and that should be monitored on a daily basis without fail. Remember that you can be profitable and fail because you run out of cash. The credit control operation in the business is the most important section of your accounting function.
A useful test for the leader is what has become known as the Desert Island method. In essence, the leader is metaphorically marooned on a desert island with a mobile telephone which works once a month and for a very short time which allows only five questions to be put.
So what questions would you put to find out exactly how the business is doing (like what is the cash position)?
More importantly, what questions would you put to find out what actions are being taken to drive the business forward to achieve the long term goals?
And that begs the question, do you (and everyone in the business) know your long term goals and do you know what you will need to do in order to achieve them? It’s certainly nothing to do with monthly accounts.