Timely financial reporting is key to making informed business decisions. Managers need to know what’s in the pipeline to respond promptly and decisively. Unfortunately, it typically takes several weeks to prepare financial statements under U.S. Generally Accepted Accounting Principles (GAAP). And many companies only produce GAAP financials at the end of the quarter or year. In the meantime, managers may turn their attention to simple “flash” reports.
Made to order
There are no standards to follow when preparing flash reports. But they typically take less than an hour to prepare and rarely exceed one sheet of paper. The goal is to provide management with a snapshot of key financial figures, such as cash balances, accounts receivable aging, collections, and payroll, on a weekly basis. Some metrics might even be tracked daily — including sales, shipments, and deposits. This is especially critical during seasonal peaks or when a company has recently restructured.
Customization is key. Each company’s flash reports contain different information. For instance, billable hours might be more relevant to a law firm, and machine utilization rates more relevant to a manufacturer.
Flash reports home in on what items matter most and how to draw management’s attention to them. Consider a restaurant, for example. Weekly revenues might be broken down by day of the week or between alcohol and food sales. Restaurateurs also keep close tabs on labor, food, and liquor costs, as well as gross margins.
Use with caution
Comparative flash reports identify trends and exceptions that may need corrective action. For example, you might compare the current numbers to the previous week, the same week in the previous year, or budgeted amounts.
When a company is starting up, aggressively expanding, or struggling, lenders and investors may request copies of flash reports — especially if management has previously failed to meet projections for growth and profitability. But sharing this information can be perilous if stakeholders don’t understand that flash reports are designed for internal purposes only.
Flash reports provide a rough measure of performance and are seldom 100% accurate. Adjustments are often made when preparing GAAP financials. In addition, it’s normal for cash to ebb and flow throughout the month, depending on billing cycles.
Be proactive, not reactive
Managers who rely on stale financial information may be blindsided by unexpected threats and miss out on time-sensitive opportunities. If you understand their limitations, Flash reports can help bridge the timing gap between daily operations and receipt of GAAP financial statements. Contact us to help you design a flash reporting format that meets your business’s current needs.
For more information on the above article or any audit & assurance services, contact Aaron Waller, CPA, at (334) 887-7022 or by leaving us a message below.
