What should you give your board? In financial reporting, if you want to avoid ‘analysis paralysis’, it is definitely a case of ‘more than enough is too much’.
Connecting actions to words gives results
Whether you have a board or not, act like you do. One day you may want to sell part or all of your business and you will be in a much stronger negotiating position if you have this stuff down.
I was recently asked: “What should I be showing my board each month?” I was a bit surprised at the question, as it seemed obvious – but perhaps not.
Your board is comprised of directors. They could be family members, friends, fellow founders, invitees or even self-invited private equity representatives. The directors may be more or less involved in the day-to-day running of the business, but either way they probably won’t be across all that is happening.
Right up front, let’s be clear that directors do not want to be drowned in financial reports and statistics.
Quantity will not bring comfort – for that you will need quality. It’s a bit like driving a car. There you are driving along and using the dashboard as your interface with the numerous, and quite complex, functions and systems under the bonnett. In business terms you could call these: liquidity, operations, delivery channels, resource management considerations, health and safety, people comfort and so on.
The dashboard information provided to the driver is very selective. Can the same be said for the information you provide to your board? Could you construct a business dashboard (one-pager) that would provide the top level critical feedback to the board? Sure you can.
So put yourself in their shoes. They represent the shareholders’ interests and attract serious personal liability if they get it wrong. They turn up once a month to the directors’ meeting and what do they want to hear? In my humble opinion there are two questions to be answered: is my backside covered (comfort) and are we on track strategically (achievement)?
Area 1. Comfort: is the business being managed responsibly and within the parameters agreed by the board?
Exception reporting is often used for this area: “If there’s a problem, we’ll tell you.” This “red warning light” mentality may be all right, but you may also consider providing additional comfort with binary confirmation – that is, when there are no problems, show green lights.
Consider reporting on:
- Financial systems and related reconciliations up to date (bank, payables, receivables, inventory, GST, PAYG, superannuation).
- Fidelity of critical systems and functions – operating within agreed parameters (technology, currency exposure, maintenance, inventories).
- Crucial legal requirements met (ASX, ASIC, APRA, ATO).
- Other critical elements specific to your industry/business.
Area 2. Achievement: is the business achieving the strategic goals set by the board?
Enter the world of business consultant heaven. Ever since Bob Kaplan and David Norton brought out their seminal work The Balanced Scorecard – Translate Strategy Into Action in 1996, accountants and strategists alike have been working to blend their methodologies – if you can’t measure it, you can’t manage it.
In a nutshell, Kaplan and Norton found a pragmatic way to link strategy to actions. In hindsight it seems a rather obvious thing to do. If an activity is not supporting a strategy goal, why do it?
They focused on four areas which they called “financial perspective, customer perspective, internal business-process perspective, and learning and growth perspective”. Mapping and understanding the relationships between the key activities of the four perspectives allows focused activity toward achievement of the strategic goals.
For example, what specific actions are required to achieve a 7% increase in market share? The increase in market share is the result of other activities. So if you can map those activities to the desired outcome, then concentrate on achieving the critical activities – in turn you will achieve the outcome.
Undoubtedly, the most powerful part of using a balanced scorecard, and there are now many, many variants, is the process undertaken to construct the “one-page” scorecard. It requires a significant effort to establish the relationships between the four perspectives, work out how to measure and manage the results and then systemise it. Done properly it becomes a very powerful strategic tool. If desired, the top level or master scorecard can then be devolved down to divisional scorecards and so on.
Some warnings. Like most you-beaut tools, you can go overboard and get analysis paralysis. Just because it can be measured, doesn’t necessarily mean that it should be.
Doing business with yourself can start to feel like real business – it isn’t. You really must be disciplined and just use the key indicators. Start off with the rule of five – any more than five is too many. Heck, if you end up with six it’s still better than 60.
The other warning is about voodoo witchdoctors – also known as business consultants. I just Googled “balanced scorecard” and there was about 1.3 million hits.
Consultants have their place, and when you need to use them make sure they facilitate your people in developing, creating and managing the scorecard – change must come from within. Otherwise the lack of ownership will inevitably ensure that it becomes another failed management fad and a waste of money and opportunity for you. Consider using your own finance team and strategists, perhaps with some external coaching and perspective if required.
Mark Robilliard and business partner Peter Frampton started a journey to find a new way for anyone to ‘get accounting’ and use it in their job and life to create value. Accounting Comes Alive was born and now provides workshops all over the world using their unique learning system that really does work, for anyone.
To read more Mark Robilliard blogs, click here.
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