Overview of the challenges in internal financial reporting

With almost all of my clients, I was surprised by the sparse monthly internal financial reporting. In most cases, sales figures were provided early, days or weeks later followed by a business analysis that was more or less meaningful. Different, fragmentary reports were sometimes not coordinated with each other, which made unnecessary inquiries necessary. Companies with tight liquidity had additional information on liquidity. In most cases, that is all there is to it.

You deserve a better basis of figures for your business decisions

As an entrepreneur, you often make decisions with gaps in your knowledge and with some uncertainty, which is actually unacceptable. Yet your figures could be significantly better at a reasonable cost in terms of time and money. As your entrepreneurial numbers coach, I will show you how you and your team can make the most of this opportunity.

Starting point of financial reporting: sales, gross profits and contribution margins

A focused view of the market with a sales forecast (in this case in terms of quotes issued), order backlog and turnover is the starting point for all your business decisions. You should keep an eye on this development on a monthly basis. This is where internal financial reporting begins.
These values are followed by the gross profit and contribution margins of your divisions or business areas. If these values are not yet available, we will discuss as a team how we can arrive at these values. In the majority of cases, this is achieved with reasonable effort.

What are your unique strengths?

The next section is the business analysis, adapted to the company and its special features with comparative values such as budget and previous period. Special features can range from sales segments to particularly relevant costs or cost blocks. As an entrepreneur, you are free to choose how you want to present this. It is important for you as an entrepreneur to be able to recognize the development of value creation over time. As your financial coach, I will work with you to prepare your figures so that they tell you the right story. Figures that do not show what was done right and what was done wrong are useless.
You should keep in mind monthly what assets are required to generate your company’s performance. This also includes the financing of these assets. Taken together, we are talking about your balance sheet. It surprises me time and again that many companies only deal with their balance sheet when preparing the annual financial statements. Often, opportunities for active balance sheet management with regard to the equity ratio and other key figures can only be utilized to a limited extent at that point.
The development of your company’s most important fuel—your liquidity—cannot be fully understood from the income statement or management accounts alone. Only when combined with the balance sheet does it show you, over time, the level and consumption through cash flow. To calculate a meaningful cash flow, the balance sheet and income statement are generally sufficient.

Detailed presentation of important assets

If your company requires assets prone to value-adjustments to provide its output, a detailed breakdown should be included in the monthly reporting. For a food manufacturer, this could be the inventory, where special attention must be paid to the part with a best-before date. For other industries, it could be the age structure of the accounts receivable or the composition of the fixed assets. I will help you find out where the particular risks lie in your assets and present them transparently.
If provisions play an important role in your company, you should have them shown on a monthly basis. Provisions offer well-argued scope for flexibility in accounting policy.
If you finance your company through loans and working capital lines, a monthly bank statement, coordinated with the balance sheet, is a must. You should prepare the bank statement primarily for yourself. The fact that it can also be used for reporting to lenders is a pleasant side effect.
These evaluations supplement you with the monthly statistics of your most valuable resource, the personnel, according to a perspective that is important for your company, often according to cost centers or areas.
You can supplement these evaluations with other company-specific, important evaluations. It is important that you, as an entrepreneur, can get a good picture of the past month and the current year in 20 to 30 minutes. Value creation and liquidity should be your benchmarks.

Proactive action through continuous internal financial reporting

With the help of regular, timely, and comprehensive monthly internal financial reporting, you will increasingly be able to act rather than react to fragmented ad-hoc reports. I’ve made it a habit to include the necessary future actions directly in these reports.
It takes little effort to prepare and update these figures and values month by month for a report. The monthly continuity allows you to identify negative developments more quickly and improves the overall quality of the data, particularly with a view toward the annual financial statements.
If you also prepare them as time series in tables, you will gain a valuable tool over the years to assess the development of your company and the quality of your decisions over time
In industries with long-term requirements, such as mechanical and plant engineering, presenting a consistently strong long-term development can be beneficial during acquisition, based on my own experience.
The forecast for the current year and the planning for the coming years can seamlessly align with the monthly actual figures at any required level of detail, whether it be general ledger accounts or balance sheet and income statement items. This significantly improves the quality of the planning. Don’t be afraid of the projected balance sheet; as your financial coach, I will gladly show you how effectively it can be created.
Combined with a multi-year plan at the same level of detail, you will have the best foundation for a numbers-based company valuation using methods such as Discounted Cash Flow, Net Asset Value, EBIT multiple, and more.
Upon your request, I will be happy to send you a detailed report on monthly internal financial reporting.

Well-prepared figures and ratios are the objective parameters that say a lot about your company. They are therefore used as reliable indicators in any assessment, be it creditworthiness or company value. You should therefore have an overview of these figures.

Numbers reflect the current situation

By means of a divisional statement, you should be able to prove where which profit contributions in your company come from. The balance sheet tells you what assets are in your company. An important key figure is the cash flow, which shows the cash inflows and outflows of your company within a certain period - i.e. the cash flows that have flowed into or out of your company during this period. The significance of individual items in the profit and loss account for the success of the company should be explained to non-experts. All these evaluations contain meaningful and necessary key figures that will determine the future success or failure of your company.

Numbers as a decision-making aid

As an entrepreneur, you have to make important decisions almost every day. However, in order to be able to make far-reaching decisions, you need to know the most important figures and the financial situation of your company from several angles. This, in turn, is hardly possible without analyses and proven controlling concepts.

But what if you don't have enough resources and financial expertise?
What if you also have to concentrate on your core business and therefore have no time left for financial management?
Then the gaps in your figures and the resulting consequences are inevitable.

The solution could be so simple: an external financial management consultant who carries out a detailed and comprehensive financial analysis for companies like yours! They will take care of efficient controlling, help with the creation and implementation of financial plans and thus secure your company's current and future earning power and liquidity

Incomplete and non-transparent figures have their consequences

Whether for future financial planning, investments and their profitability or a transparent evaluation of your company: incomplete and non-transparent figures have an impact on all areas of your company, sometimes with considerable consequences. Without efficient controlling and appropriate documentation, you will not be able to provide clear answers to the most important questions about your finances. This leads to wrong decisions and bad investments, as you can neither check the profitability of business areas nor assess possible risks on this basis. Similarly, without sufficiently structured financial management, you will not be able to convince potential business partners or lenders. This is because they are also dependent on a clear analysis with transparent and complete figures in order to be able to make decisions with as little risk as possible.

Meaningful and trend-setting: financial analyses for companies

Whether by an external expert who is happy to prepare figures successfully or an internal financial management department: a sound financial analysis for companies is the basis for all decisions and strategies within the company itself, but also for the relationship with various business partners, banks and other institutions. All financial planning should therefore be based on the figures from a financial analysis . After all, how can you plan the future, implement plans, make the right decisions, minimize financial risks or make statements about the value of your company without knowledge of the financial stability and health of your company ? With a transparent financial analysis, on the other hand, you strengthen your negotiating position in discussions with business partners, creditors and potential investors.

What does a financial analysis for companies include?

A financial analysis is usually quite extensive, but this is more of a challenge than an unpleasant problem for an expert in financial management consulting. If important evaluations are missing for a financial analysis, such as a divisional statement, this will be prepared. Strictly speaking, a financial analysis for companies includes several analysis elements such as balance sheet analysis, profit and loss statement analysis, cash flow analysis and the calculation and analysis of other key figures that are important for the company. Sounds complicated and gives you trouble sleeping? Then hand over these financial management tasks to a specialist you trust. They will quickly bring order and structure to your previously confusing jungle of figures.

Benefits of financial management consulting

An external financial consulting expert sees problems as challenges, works holistically and solution-oriented and can support you in the following areas of your company's development, depending on your needs:

• Updating and presenting the entire reporting and cost accounting system
• Determination of gross profits and contribution margins by division, product, customer, etc.
• Preliminary and final costing of your company's output
• Calculating the profitability of investments
• Figure-based analysis for a planned company sale or a general company valuation
• Active receivables management
• Preparation of documentation for credit inquiries

Thinking about the future: long-term financial management

When it comes to sound financial management advice, you should not only think about current situations, but also about future goals and plans, such as an exit in a few years. Therefore, in addition to purely operational financial management, a strategic approach with future competition and market analyses, risk assessments and the inclusion of developments in possible trends is recommended. After all, you don't just want to base the success of your company on current day-to-day business, but also ensure optimal development in the desired direction.

Lack of results due to unprofitable business areas

If there is not much left at the bottom line despite actually good sales, only complete transparency will help to identify the cause. It is not uncommon for these to be areas within the company that are not generating enough profit or are even being kept alive at the expense of other, profitable areas. The larger the company, the later this often becomes apparent and the more it costs the company. Companies that make use of sound financial management advice are in a much better position here. This is because an experienced financial advisor can create financial transparency right from the start, so that unprofitable areas of the company can be quickly identified and measures can be initiated.

Brings clarity: Check the profitability of business areas

When a company grows, the number of individual departments or subdivisions - in short, the complexity - usually grows with it. Complexity usually means costs. This means that not every service or product line brings in the desired profit. Not every high turnover means a correspondingly high earnings. If the structures are inadequate, every additional turnover brings in increasingly lower profits, which is called Overtrading. In this case, the only thing that helps is to face the facts and ask yourself: should I restructure, sell or close down these unprofitable business divisions? Carrying on as before is the least favorable, albeit most convenient, option imaginable and will cost your company a lot of money in the long run.

Create financial transparency and make decisions

It is not due to a lack of knowledge that individual areas of the company become a hidden cost trap in the long term. Such unprofitable areas are more a sign of a lack of transparency. Once a certain culture of incomplete figures has taken hold in your company, the only thing that helps is complete transparency, by putting all the relevant figures on the table and subjecting them to an honest review. Once the cause of the lack of profit has been found, you should make an equally clear decision to put an end to the negative cash flow and unprofitable use of resources.

The benefits of closing down or selling unprofitable areas

The closure or sale of an unprofitable area must be well planned. First of all, you need full knowledge of all the costs allocated to the area. After that, valid, comprehensive planning of the closure or sale, can improve your company's results.
You can finally concentrate on your core business again without having to worry about too many sub-areas and niches. A fresh start like this is like a liberation and unleashes unimagined forces with which you and your employees can get your company back on the road to success.

Support through professional change and financial management consulting

The many advantages and areas of responsibility of a financial management consultant show how important sound financial advice is for companies. Among other things, the following factors play a major role in financial management consulting:

• Change Management
• Resource planning and control
• Long-term goal tracking (strategic financial management)
• Short-term goal tracking (operational financial management)
• Securing liquidity
• Profitability of the individual divisions
• Planning, implementation and calculation of investments
• Risk management and much more

External financial management consulting: also helpful when selling

If it turns out that a partial sale or even a closure of a business unit is unavoidable, it is not uncommon for a lot of fears to arise. Employees fear for their jobs, you as an entrepreneur are afraid of taking a radical step... When you close down an unsustainable, constantly cost-incurring area, it's like giving up smoking: you give up something harmful in order to (re)gain something more valuable. The help of a financial management consultant is particularly useful when selling a division of your company that is not profitable. This is because they know the process with all its hurdles and challenges from their everyday work and can therefore provide you with support. In addition, you and your employees should take the following saying by the Spanish author Miguel de Unamuno to heart:
In every ending lies a new beginning!

Facts and figures as a basis for sales

If you want to sell your company or individual divisions, you should consider a few things in advance. After all, preparation is everything when selling a company. The financial situation must be absolutely transparent in order to be able to determine the current numerical value of the company. Only those who can put clear facts and figures on the table will receive the maximum purchase price for their company.

Reasons for a planned company sale

There are numerous reasons for selling a company, be it private reasons, positive or negative economic prospects or others. Having an initial idea of the value of the company protects you from surprises and allows you to act in a more targeted manner. Especially as some reasons for the sale also have an impact on the company value to be determined. In any case, owners of small and medium-sized companies in particular tend to overestimate the value of their life's work.

Likewise, many owners underestimate the long-term preparation required to objectively determine and represent the value of a company when planning to sell it. This is because the highest possible company value can only be justified with sufficiently number-based arguments. The sooner you allow yourself to be guided by the available figures and data rather than your feelings, the more realistic the result of the analysis will be. This is why many entrepreneurs bring a financial professional on board.

Important parameters for company valuation

The valuation prior to the sale of a company is based on a number of important factors. In addition to the current figures and data, these include the individual size of the company, the type of company or sector and the number of employees that may be taken over. In order to achieve the highest possible sales value, you must therefore not only create financial transparency, but also take other factors into account. Nevertheless, the respective figures will probably play the most important role in the sale of any company. You should therefore be able to fully document your cash flow and other parameters and bring order to your numerical data. This is part of the preparation for every company sale and should not be left to chance, but rather to a professional financial management consultant.

Key points in determining the company value

There are various calculations that need to be made in order to determine the value of a company. The following calculations are part of the preparation before every company purchase and are part of the valuation:

• Sales forecast, order situation and turnover
• Contribution margins of products and services
• Past and future development of the EBIT margin
• Past and future cash flow
• Determination of possible asset and/or property values
• Debt and equity ratio
• Structure and quality of outstanding receivables
• The number and quality of employees working for the company as well as the turnover in recent years
• The entrepreneurial value of your corporate identity
• The evaluation of individual unique selling points
• All measures to increase current sales and returns and many other factors

Changes in company valuation

To determine the value of a company, you need the audited financial statements from several past years. On the other hand, a company valuation is always a snapshot in time and is therefore subject to change. Any change in the company's figures will also have an impact on its valuation. Some of the more stable factors that influence the company's value include the location of the business and the industry in which it operates. These factors can significantly decrease or increase the actual company value, which is initially based on numbers.

Increases company value: optimizing your company finances

Whether it's invoicing, receivables management and dunning, costing, integrated financial planning or other processes that have a long-term and short-term impact on your company's financial situation: You can only justify a higher purchase price for your company if you optimize your company finances, i.e. pay attention to the greatest possible efficiency. Numerous processes can be simplified and optimized with the help of digitalization. It is even better to hire an experienced financial management consultant to take care of the preparations and important number optimization when selling your company. After all, it is always better if one person keeps track of all the parallel processes and tasks and manages the finances, figures and data relating to the sale of the company.