Ins and outs of a financial reporting process

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Part of a good financial reporting process is setting up a budget to estimate both revenue and expenses each month.

T have a good financial understanding of how your business is doing we recommend tracking your budget to actuals at least monthly. At this cadence, you won't spend too much time updating numbers but you will still have regular updates on how the business is performing. To analyze the budget it helps to include both the dollar amount difference as well as the percentage between the budget vs. the actuals. We’ll cover this in more detail in a separate post.

What Frequency Should I Track -

Month over Month

The simplest and most common way to track your budget to actuals is month over month. This way at the end of each month you compare that month's performance compared to the actual results. Mont over month budget to actuals is considered industry standard and is easy to build if you already do your forecasts every month.

Year to date (YTD)

A little bit more advanced is to track your financials each month on a YTD basis to monitor your performance against your year-long plan. Understanding how you are tracking to meet your year-end goals gives you time ahead of schedule to adjust accordingly to stay on, or get back on track. To build your spreadsheet using YTD numbers you can sum your projections through the current month and compare them to your actuals.

Prior year vs. current

Another way to track is to compare your current YTD or month-to-date numbers against the same period from the previous year. This is recommended for more mature businesses that may be impacted by seasonality. Looking at the results for the same period over multiple years makes it easier to see the impacts of any seasonality. This helps make sure that you don't overreact to any changes in your business that you may have experienced before.

What should I track?

You should track all relevant KPIs to the business for both revenues and expenses. On the revenue side, you should have a high-level understanding of how each of your different revenue streams or product lines are performing every month. The more granular the KPIs the more volatility to expect.

On the expenses side, track metrics that have an impact on the business. KPIs that you could potentially take action on are optimal, for example

How much did you spend on your corporate credit card?

How much did the team spend on conferences?

Did your raw materials get more expensive and if so, by how much?

Other accounting items like taxes and depreciation may not be as valuable to track vs. a plan given their predictable nature and general inability to control over the short term.

Tracking a variety of metrics can be helpful to identify areas where you are either over or under your budget and by how much. By understanding what is driving the changes, you can adjust your operations accordingly. Maybe you have a little bit more budget than you thought and want to upgrade that conference marketing package you had booked for next month. Without having a good understanding of your financial state it would be more challenging to allocate additional money to different resources.

The more specific you can get with the metrics and numbers you track, the easier it will be to identify when something materially changes.

For non-profits, things like grant-specific spending or program expenses are critical to keep track of.

If you are still manually updating your numbers each month, try out Genius Sheets and pull in data into your existing spreadsheets using our custom formulas.

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