At a Toastmaster meeting, I heard a story that I found really interesting about a ceramics teacher who divided his class into two groups: one focused on producing a high quantity of work, and the other focused on quality. When it was time to grade their work, the teacher noticed that the group producing the most work had also produced the highest quality pieces. This group had learned from their mistakes and improved with each attempt, while the quality-focused group had little to show for their theoretical knowledge. This story highlights the importance of consistency in learning and improvement.
While this story may seem unrelated to business finances, consistency is crucial in achieving financial success. In this article, I will outline five reasons why consistency is important in any business, with a focus on finance.
Consistency creates momentum. As Lou Holtz, the legendary football coach, once said, "In this world, you're either growing or you're dying, so get in motion and grow." This quote resonates with me as a small business owner, as I believe that establishing a consistent process is the key to building momentum and achieving results.
For instance, in my CFO services business, I have established a daily outreach routine and meticulously track my progress. Similarly, in fitness, exercising regularly builds momentum and turns into a habit, whereas stopping can make it difficult to start again. In finance, consistent monthly reporting and forecasting that is regularly reviewed and compared to previous periods and budgets can provide the momentum needed to achieve financial goals.
In my experience, momentum is a critical component of goal setting and achievement. By consistently tracking progress and making improvements, businesses can build the momentum necessary to achieve their financial objectives.
When it comes to financial planning and analysis, trending is a crucial tool for forecasting future months. However, it's not uncommon for me to come across businesses where revenue and expenses are not matching by month. As a rule of thumb, it's important to ensure that revenue and expenses are recorded in the period they occurred, as indicated on the Income Statement.
In some industries, such as media and marketing, it's common to have pass-through costs that are billed to clients and paid out to other vendors. If a client pre-bills for all the revenue in one month but the pass-through costs are recorded in another, it becomes challenging to determine the revenue. This not only affects the accuracy of revenue recording, but also causes revenue to fluctuate each month due to processing timing.
Consistency in accounting and reporting is crucial each month to accurately assess business performance and trend revenue into future months. By ensuring that revenue and expenses are matched correctly each month, businesses can analyze trends and make informed financial decisions to improve their bottom line.
Effective communication is critical in any business, especially when it comes to financial information. Consistency in communication is essential to ensure that everyone is on the same page and understands the financial health of the business. This is where the importance of consistent reporting and metrics comes into play.
Establishing regular meetings and reviews of financial reports, including the Income Statement, Balance Sheet, Statement of Cash Flow, and other Key Performance Indicators (KPIs), is crucial to ensure everyone is up to date on the financial performance of the business. But it's not just about reviewing the reports themselves - the presentation, delivery, and commentary should also be consistent. When executives know what to expect and understand how to interpret the information presented to them, they can make informed decisions and take appropriate action quickly.
Consistency in financial communication also builds trust and transparency within the organization. When everyone is on the same page and has a clear understanding of the financial health of the business, it creates a sense of unity and shared responsibility. This, in turn, can foster a culture of accountability and collaboration, which are essential for achieving the company's goals and objectives.
Standardization is crucial in ensuring consistency in a business's financial processes. A standardized process is one that has been optimized and refined over time to be performed the same way every time. By doing so, the process becomes more efficient and less prone to errors, as the people involved become familiar with the steps and requirements.
In financial management, standardization can be achieved through the implementation of best practices, documented procedures, and the use of technology. For instance, having a standardized month-end accounting and reporting process can reduce errors and save time, as well as making it easier to track performance against established benchmarks.
Moreover, a standardized process can help identify areas of improvement and highlight where further efficiencies can be gained. By continuously refining the process, a business can reduce costs, improve quality, and increase productivity, ultimately leading to greater success.
For bankers, auditors, and investors, consistency in financial reporting is key. They want to see a steady growth in revenue, expenses, and margins. Any unexpected changes in these metrics will be scrutinized, and explanations will be required. Consistency builds trust and confidence in the financial performance of the business and ensures that all stakeholders are on the same page.
To keep bankers, auditors, and investors happy, it is essential to maintain consistency in financial reporting. Anomalies and red flags can have a negative impact on their perception of the business and could lead to potential issues in the future.
Consistency in financial reporting is vital for any business. It builds momentum, allows for accurate trending and analysis, improves communication, and keeps stakeholders happy. At Bender CFO Services, we understand the importance of consistent financial reporting and offer a range of services to help businesses achieve it.
Our team of experienced CFOs can help you establish a consistent process for financial reporting and analysis, develop key performance indicators that are relevant to your business, and improve communication with stakeholders. We can also provide ongoing support and guidance to ensure that your financial reporting remains consistent over time.
Don't let inconsistency hold your business back. Contact Bender CFO Services today and let us help you achieve consistent and reliable financial reporting.