Make More Timely Business Decisions with Interim Financial Reports
If you decide to hire new employees, adjust prices or expand operations, you shouldn’t rely on financial information that might be months out of date. And this may be the case if your business generates only one set of financial statements annually. Interim financial reports can provide a fresher picture of operational performance and strategic direction. Used consistently, such reports can help you spot emerging problems and potential opportunities.
Your Reporting Routine
Interim reporting covers periods shorter than one fiscal year, such as a month or quarter. The appropriate frequency depends on your business’s size, complexity, seasonal patterns and financing requirements. Rapid growth or cash flow problems may warrant more frequent updates than if your operations are steady and predictable.
To produce an interim report, start with your most recent set of financial statements. Then supplement it with other relevant information, such as inventory turnover rates or profitability by product or service. (We can help you gather what you need and set up an interim report template.)
Beyond Revenue Growth
Once you have an interim report, compare the results with your budget and your financial statements from that period of the previous year. Be sure to account for seasonality. A slow quarter may be normal for your business, but disappointing results during your historically busy months should probably ring alarm bells.
Revenue doesn’t tell the whole story. Because of higher labor costs, supplier price increases or excessive discounting, sales may rise while profit margins shrink. Understanding the cause can help you decide whether to adjust pricing, renegotiate purchasing terms, change your sales approach or take no action at all.
Don’t forget to review your balance sheet and statement of cash flows together. Growing accounts receivable may reflect increased sales, slower collections or both. Excess inventory can tie up cash, while shortages can delay orders. Increasing reliance on a line of credit deserves investigation, especially if you borrow to cover recurring operating shortfalls.
Dependable Numbers
An unexpected result in an interim report doesn’t necessarily signal a crisis. But don’t dismiss it as something you can fix at year end. Immediately determine whether the anomaly reflects a business change, an accounting error or an outdated estimate.
Keep in mind that consistency matters in interim reports. Record revenue and expenses in the appropriate periods for your business’s accounting method. For accrual-based reports, evaluate applicable expense accruals throughout the year, including bonuses and profit-sharing obligations. Omitting these costs until year end can overstate interim profitability.
Inventory records and customer balances also need attention. Reconcile key accounts, investigate inventory discrepancies and assess whether outstanding receivables are collectible. Support any estimates and revise them if circumstances change. Although accounting software can speed report preparation, the quality of its output depends on accurate entries and review.
Following Through on the Findings
When you review interim reports, assign practical responses to them — for example, a conclusion, an action or a further investigation. Then use your next interim report to evaluate whether your response was effective. Contact us to set up an interim reporting schedule so you can translate financial results into more informed business decisions.
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