Finance · Organising to Scaling
Reviewing your numbers every month
Every month, within ten working days of closing, you hold a one-hour review of your numbers with a fixed agenda, and every review ends with decisions that have an owner and a date.
Worth reading first: Reading your P&L
Does this sound familiar?
- The figures for the first half of the year arrived in September. By then it was too late to do anything with them.
- Your bookkeeper sends a PDF every quarter. You open it, see the result is positive, and close it again.
- In the leadership team, it's all about revenue. Nobody talks about margin, cash or debtors.
- Staff costs ran over budget for three months before anyone noticed.
- A client has owed you money for four months, and nobody knows who was meant to call them.
Who it's for, and when
For founders who only see their numbers once the annual accounts are done or the bank rings, and for leadership teams that steer on revenue without knowing what's left at the bottom. You need it in Organising, once you no longer see every invoice yourself. In Proving, half an hour a month with your bookkeeper on the bank balance and debtors is enough.
The model
Numbers only help if they're fresh enough to change something. So close the month within ten working days: the bank reconciled, every sales and purchase invoice posted, and the accruals done, such as revenue still to be invoiced, the holiday pay provision and depreciation. Skip that last step and the result jumps around from month to month, and you're reading noise.
Then a one-hour review, at the same time every month, with a fixed agenda: the result against budget, cash flow and cash position, debtors, and the three biggest variances. A fixed agenda makes the months comparable and stops the conversation getting stuck on whichever figure happens to stand out.
Don't go through every line. Agree a threshold, for example more than 5 per cent and more than €5,000 off budget, and pick the three biggest from what's above it. For each variance, three questions: what caused it, is it one-off or structural, and what are we doing about it. Whoever owns the cost line or the revenue explains it.
A numbers review is finished when decisions have been made, each with an owner and a date, and when it's clear whether the forecast for the rest of the financial year needs updating. How to read a P&L is in the lesson Reading your P&L; how to turn a point into a decision is in Solving problems instead of discussing them.
The monthly management review as controllers run it: budget next to actuals next to last year, with an explanation of the big variances. Explained by Sabrina Parsons (Palo Alto Software) and in the book by Karen Berman and Joe Knight (2008) listed below.
Result against budget
Revenue, gross margin, staff costs, other operating costs and EBITDA. The month and the year to date, next to budget and next to last year.
Cash flow and cash position
Cash at month-end, the change on last month and where it came from, and the outlook for the next three months, including the VAT payment and the headroom on your credit facility.
Debtors
Debtor days and the ageing of what's outstanding. Anything over sixty days by name, with who's calling and when.
The three biggest variances
Above the threshold, the three biggest in euros. For each one, the cause, one-off or structural, and an action with an owner and a date.
Pitfalls
Waiting for perfect numbers
A few invoices are still missing, so the review moves back a week, and then another. Review the numbers on the agreed day. A difference of a few thousand euros rarely changes the decisions.
Letting the bookkeeper run the review
The bookkeeper explains how things were posted, and then everyone leaves. The bookkeeper supplies the numbers and answers questions; you or whoever's responsible for finance leads, because the decisions belong to the leadership team.
Watch and read
How a monthly review runs: plan next to actuals next to the previous period, and what you do with the differences.
Watch on YouTubeHow to read a budget versus actuals report, and how to pick the variances worth discussing.
Watch on YouTubeIn Dutch: how to project your cash forward, the second item on the review agenda.
Watch on YouTubeTo go further
A controller with fifteen years' experience on what holds up the month-end close, and why five to ten days is achievable. One to watch with your bookkeeper.
Watch on YouTubeRead
Financial Intelligence for Entrepreneurs
Karen Berman en Joe Knight · 2008 · ISBN 9781422119150
The P&L, balance sheet and cash flow explained for the business owner rather than the accountant, with the ratios you'll use in a monthly review. 284 pages.
View the bookApply it
- 1
1. Agree the close with your bookkeeper
By the eighth working day after month-end, the numbers are in, accruals included. Agree which items they'll include every month, and what happens if it doesn't work out.
- 2
2. Put the review in the diary for the whole year
Around the tenth working day, same time every month, one hour. Who: the founder, the leadership team or whoever's responsible for finance, and the bookkeeper for the first twenty minutes or the whole hour.
- 3
3. Share out the preparation
The bookkeeper supplies the P&L and balance sheet. Whoever handles finance builds the overview against budget, picks the three biggest variances and sends everything round two working days beforehand. Whoever manages debtors supplies the aged debtors list. Each member of the leadership team finds out the cause of any variance in their own area.
- 4
4. Record the decisions where you'll find them again
Each decision gets an owner and a date, in the place where the team keeps track of its work. The next review starts with that list.
Examples
Ready to use: the monthly numbers review (60 minutes)
Who: the founder or whoever's responsible for finance leads, with the leadership team and the bookkeeper. Ready beforehand, by the eighth working day at the latest: the month is closed, accruals included; the overview of result against budget and last year, the cash forecast, the aged debtors list and the three biggest variances with a first explanation have gone round two working days beforehand. 0 to 5: last month's decisions. What's been done, what hasn't, and why. 5 to 20: result against budget. Revenue, gross margin, staff costs, other operating costs and EBITDA, for the month and the year to date. Only what's above the threshold gets discussed. 20 to 30: cash flow and cash position. Cash at month-end, the change and where it came from, the outlook for three months, including VAT and credit facility. 30 to 40: debtors. Debtor days, and anything over sixty days by name: who's calling, and when. 40 to 55: the three biggest variances. For each one, the cause, one-off or structural, and an action with an owner and a date. 55 to 60: read the decisions back, and ask whether the forecast for the rest of the financial year should go up or down. Afterwards, it's on record: every decision with an owner and a date, and whether the forecast has been updated.
A technical services firm with 40 people
In March, staff costs were €18,000 over budget. Digging into it showed that two engineers off sick had been covered by contractors, while the sick pay from the insurer hadn't been posted yet. One-off, and partly recoverable. The controller booked the amount due from the insurer in April, and the operations manager was asked to report any contractor hire in advance from now on. Without the review, nobody would have spotted it until the annual accounts.
An online shop that grew and ran short of cash
Revenue was 12 per cent over budget, yet cash fell three months in a row. The cash flow item on the agenda showed why: stock for the autumn had been bought early. The leadership team decided to split the second order and to talk to the bank about the credit facility in advance, rather than in November.
Do this in your own business
Everything up to here is free. What you fill in for your own business, you keep in Boldcaster.
- Go to Actuals. On the Actuals tab of Budget & forecast you'll see, month by month, what you budgeted next to what actually happened, with the difference. That's the basis of the review: put the screen up and go through the three biggest variances.
- You look back on a situation from your own work. Only you can read what you write.
- You set a date with yourself, and on that day the app asks how it went.
- You assign the lesson to your team and see who has done it.
- The quiz counts towards your progress, and you see which lesson comes next.
Four weeks free. You'll land straight in this lesson.
Quiz
6 situations. You need 5 of 6 right. You can try again at any time.
1.Your bookkeeper usually delivers the monthly figures six weeks after month-end. What's the best first step?
2.In January the result is well above budget, in February far below it. Nothing unusual happened. What's the most likely cause?
3.The overview against budget has forty lines, and almost all of them show a variance. How do you spend the fifteen minutes for variances?
4.Revenue has been over budget for three months, but cash is falling. Which agenda item answers it first?
5.The review ends with 'we need to keep a closer eye on debtors'. What's missing?
6.After three months it's clear that purchase prices are structurally 4 per cent above budget. What do you do with the budget and the forecast?
Nothing is saved here. In the app, the quiz counts towards your progress.
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