The numbers are right, but are they interesting?
John Stretch explains how to bring your monthly management accounts presentation to life.
It’s time to present the monthly management accounts to your exco. You’ve done the work, the numbers are right, and you know how to explain them - but how do you make them interesting for your audience?
Rather than following the same layout, month after month, year after year, try to find new ways to bring the figures to life.
I once attended a monthly results meeting at an ad agency, and the CFO of the company delivered a very impressive presentation. After the meeting, I asked her how she made her delivery so impressive. She said:
“When I joined the agency, I set myself a goal - to make this the meeting my colleagues really look forward to attending each month. My presentation - which I rehearse beforehand - has an educational component, a review component, and an entertainment component.”
She appraoched each of the elements of her presentation in the following ways:
When presenting results, focus only on the six financial ratios that drive the industry and always stress the benchmarks for good performance. Make sure each person attending the meeting is able to explain these ratios, how they are calculated, and what they tell you.
- They must be able to give you the agency’s:
- Target gross profit margins
- Key expense to sales ratios
- Cash cycle, and
- Debtors’ days
Similarly, make sure everyone understands the key non-financial operating ratios:
- Revenue concentration by segment
- Client acquisition and retention
- Cost per hour and per employee
- Capacity utilisation, and
- Staff turnover under recoveries
Key success factors
Quantify and report on the key success factors of the business, as well as its sensitivity around these factors. The CFO used their ad agency studio, where the most important key success factor is utilisation, as an example.
“Every month, the monthly accounts include a report on the link between utilisation and profitability.”
Distinguish between the hard and soft numbers
Take a view on various uncertainties in the monthly accounts.
Things like the company’s:
- Doubtful debts
- Incentive provisions
- And royalty accruals
You have to make the right decision for the company about what profits to report and what its earnings really are.
The CFO explained that she discusses the difference between hard profit and soft profit with her colleagues. Hard numbers are certain, for example: actual wages paid. Soft numbers are estimates, like provision for holiday pay, doubtful debts, and depreciation.
“It’s easy to be tempted to deliver good news and hide bad news. As a CFO I must have the strength of character to be able to deliver bad news as easily as good news.”
She advises to let your colleagues know what’s going on every step of the way. “I deliver bad news to them every month so the numbers don’t lie,” she said.
Demonstrate the agency’s breakeven economics
Report on the breakeven point of the company each month, and use the example of losing its biggest client to show the sensitivity of profit to changes in volume, fixed costs and variable costs.
Highlight the differences between expenses of today, yesterday and tomorrow
Expenses of today are the costs of doing this month’s business.
Expenses of yesterday are claims, disputes, litigation and credit notes.
Expenses of tomorrow are the costs of:
- Intellectual capital
- New market development
- Brand building
- New product research
- IT projects, and
- Management training
And other project development costs where the benefits will be realised in future months and years, but the expenses are shown in this month’s costs.
“I show these items separately. I report today’s profit and then subtract costs of tomorrow, collected by project not expense category.”
Capital vs revenue policy, especially for maintenance
“We spend a lot of money on cameras, laptops, projectors, and software. Our designers always have to have the latest technology,” the CFO explained. “The challenge is to distinguish between expansion capex, maintenance capex and maintenance expense, for these items. I have a policy but there are always grey areas and my colleagues try to bend the rules to optimise their departmental profits. Every month I highlight a few real examples.”
Show graphs instead of figures when dealing with lots of data
The CFO said she always ends the meeting with the same four graphs that capture their financial performance in a nutshell, because her colleagues are all creative types with pictorial minds.
“My long-term goal is to circulate responsibility between attendees for presenting the monthly accounts to the managers’ meeting each month,” the CFO concluded.