Why Can’t I Get Better Information to Run the Business?
A common complaint we hear from business owners is that they struggle to use information to run the business. It is either not timely, not accurate or both. Those same business owners find it harder and harder to manage the business by feel as the business grows and evolves. This can lead to an inability to spot cracks when they begin and a loss of potential opportunities when answers are buried in the fog. This issue is often just the tip of the iceberg to what is going on within the business.
In terms of expectations, the vast majority of businesses should be able to close their monthly books within 15 days. For complex businesses, maybe 15 days are needed, but there are also plenty of businesses where there is no reason they cannot close in 10 days. Regardless, having financials and key reporting 30 to 45 days after the month ends is unacceptable. Reporting in your business does not exist just for compliance reasons, it exists to help its leaders make decisions. If payroll was high relative to revenue in the month prior, and you don’t see the numbers for 45 days, it is way too late to make a decision to address it. You can and should expect better. In all likelihood, there is not just one fix. We see a number of common issues that underly this common problem. What are they, and how can you address them? Recognizing this and how they can affect the business as it evolves over time could give you the competitive edge.
Lack of Process and Systems
Many small businesses lack well documented, replicable processes and systems in their financial function. One of the biggest sources of data timeliness is frequent inefficiency. A lack of process results in unclear roles and responsibilities, and makes it way too easy for other priorities to get in the way, further derailing progress. This can lead to a financial death spiral as the financial function is always faced with a combination of recurring and routine tasks while also being able to keenly tackle annual or infrequent items like tax filings or a workers comp audit. Quite simply, once behind, it can be nearly impossible to get and stay caught up. Another common challenge is an over-reliance on the human brain in the financial function. This is a doubly problematic as in and off itself it can be inefficient as one person can become a frequent bottleneck, but worse still, we see too many businesses where an important financial person leaves and the whole system unravels.
And one other word of caution here, simply investing in an ERP without making other changes is highly unlikely to work. ERPs need to be built and configured to the specifications and needs of the business. Without good processes and systems, it is nearly impossible to make any ERP work to its fullest, either an existing or a new one. As a CEO, you won’t and likely can’t know all the processes needed by your finance function. You can set expectations however. Ensure all key financial processes are documented and followed.
Reporting is Cumbersome
Depending on the nature of the business, the system or systems used may make it difficult to compile reporting. Small businesses often suffer from polar ends of the spectrum with either minimal data, which does not provide sufficient visibility, or way too much data that can’t easily be aggregated. This can result in a significant burden on the human element to produce reporting of value, and that usually takes a lot of time and manual effort. Also worth noting, there countless industry specific ERP systems that small businesses rely upon. This specialization can create a false sense of security because although the front end or operations components of the systems may work great, that does not mean the financial modules are also solid, and many times they can be poor.
Does your system(s) have effective canned reporting? If not, it may be worth the investment to use internal or external resources to build out such reporting templates that can be much more easily relied up on the future. There can also be shortcuts to getting information out sooner. As long as you have good directional accuracy, getting information out quicker knowing it is not perfect, but “good enough” can make a huge difference. Have you set that expectation? Is your team capable of the judgment to assess that?
Outstripped the Current Team’s Ability
Business often evolves faster than its people. Has the business outgrown one or more team members? This is quite normal. The team that gets you from point A to point B often cannot get you to point C. Especially in the financial function, we too often see a feelings of loyalty and trust too heavily outweigh capability. That is a mistake. Can the existing team create and document process? Are they able to supply you with usable information and not just information? Is there just too much volume for the team to keep their arms around? Perhaps a higher level skill set is needed. Always have in mind what that could look like. And what is critical here are the right resources, throwing bodies at financial problems, even if volume driven, is rarely the answer. The good news is, fractional resources are a great option to augment internal ones, when the ideal in house team is not cost effective, providing a best of both worlds for small businesses.
Mentoring is Needed
Most small businesses rely on “homegrown” talent in operations and financial positions, truly learning by doing versus bringing best practices from past careers. That talent has grown in responsibility as the business has grown. However, have judgment levels, skillset and capabilities kept pace with what the business needs? Ask your senior team what “good enough” means to them, and how they get there. How do they respond when completely new challenges pop up or competing priorities? How adaptable are they or willing and able to drive change? There is a ton of value for small businesses in having the experience of its team to navigate the “firsts” that the business will face. Especially if the team is anxious the learn, the answer could be to surround them with experienced outside talent, such as peer groups or fractional support.
Asking the right questions, setting the right expectations and being open to more sustainable ways to operate on a monthly basis is the most effective way to improve information and reporting in entrepreneurial businesses. Your reporting functions can be a success. Endeavor to get beneath the pain to what could be causing it, and seek help to diagnose where you can’t.
