It usually takes between two and six weeks for management to prepare financial statements that comply with the accounting rules. The process takes longer if an outside accountant reviews or audits your reports. Timely information is critical to making informed business decisions and pivoting as needed if results fall short of expectations. That’s why proactive managers often turn to flash reports for more timely insights.
The benefits
Flash reports typically provide a snapshot of key financial figures, such as cash balances, receivables aging, collections, and payroll. Some metrics might be tracked daily, such as sales, shipments, and deposits. This is especially critical during seasonal peaks, when undergoing major changes, or when your business is struggling to make ends meet.
Effective flash reports are simple and comparative. Those that take longer than an hour to prepare or use more than one sheet of paper are too complex to maintain. Comparative flash reports may help identify patterns from week to week — or deviations from the budget that may need corrective action.
The limitations
Flash reports also can identify problems and weaknesses. However, they have limitations that management should recognize to avoid misuse.
Most importantly, flash reports provide a rough measure of performance and are seldom 100% accurate. It’s also common for items such as cash balances and collections to ebb and flow throughout the month, depending on billing cycles.
Companies generally only use flash reports internally. They’re rarely shared with creditors and franchisors unless required in bankruptcy or by a franchise agreement. A lender may also ask for flash reports if a business fails to meet liquidity, profitability, and leverage covenants.
If shared flash reports deviate from what’s subsequently reported on financial statements that comply with U.S. Generally Accepted Accounting Principles (GAAP), it may raise a red flag with stakeholders. For instance, they may wonder if you exaggerated results on flash reports or if your accounting team is simply untrained in financial reporting matters. If you need to share flash reports, consider adding a disclaimer that the results are preliminary, may contain errors or omissions, and haven’t been prepared in accordance with GAAP.
What’s right for your organization?
There’s no one-size-fits-all format for flash reports. For example, billable hours are more relevant to law firms and machine utilization rates are more relevant to manufacturers. Contact us for help customizing your flash reports to incorporate the key metrics that are most relevant to your industry. We can also answer questions about any reporting concerns you may be facing today.
For more information on the above article or any business advisory services, contact Aaron Waller, CPA, at (334) 887-7022 or by leaving us a message below.
