Supporting your clients with financial and non-financial reports/data
It's fairly reasonable to say the last normal financial year ended on 30 June 2019. It's certainly been anything but normal since, given COVID-19's impact, supply chain issues, staff shortages, high inflation, and rising interest rates. While some businesses performed well in the uncertain times, many others have struggled and some have failed.
When we review business performance as part of business improvement, these themes regularly come up:
- The business is unable to get enough staff to run properly. This applies to all industries including the professions.
- Products and services are provided without generating profit.
- Cash-flow issues. It's always tight to pay the bills and choices are being made on who to pay.
- Very large tax debts for GST and PAYG.
- ATO lodgments not being done on time.
- Decisions not being made to resolve problems or improve the business.
Solutions for the issues above require a clear understanding of how your client's business is performing and knowing what to compare it to.
Understanding how your client's business performs
Two parts apply to assessing business performance:
- Financial reports, which accountants love and their clients either ignore or struggle to understand.
- Non-financial data, which clients usually better understand/appreciate its value, but their accountants often give it less attention.
Financial statements give a snapshot (the point in time) of the business and can't highlight trends yet to have a financial impact. These include:
- Future bookings.
- Number of quotes issued.
- Tenders submitted.
- Website hits.
- Number of customers who haven't ordered in a certain period.
To get a clear picture of your client's business and its performance issues, it's essential to go beyond the standard financial information.
Using scorecards effectively summarise a broader view of the client's business including financial and non-financial information. While clients may need some training on how to use and understand the scorecard's information, it's frequently much easier to understand what's happening in their business and see the issues clearly.
What should I compare my client's information to?
Many clients experienced a significant variance in their financial performance since 2019 and therefore skewed effective benchmarking. If possible, we recommend using pre-COVID benchmarks with any necessary adjustments to reflect major changes in the business. Using client's own data from prior years will show changes in the business and pre-COVID data will highlight any impact the last few years has had.
The Australian Taxation Office (ATO) provides a wide range ofindustry benchmarkswith key performance indicators based on data lodged on tax returns and activity statements.
Other useful sources are industry or profession body benchmarks. Although these tend to be voluntary and may not be a big enough sample size to be a highly accurate data source, they can still provide guidance on how your client's business should be performing.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
