According to Robert Half, only 25% of CFOs of privately held companies shared financial data with their employees. In contrast, they also found that 82% of workers want updates on their company’s financials.
Private companies have no regulatory requirements to produce financials like their public counterparts, and often the visibility of financial data stops at the executive level. However, most operating dollars are being spent below the executive level – so wouldn’t it make sense to let the spenders see the whole picture?
Most modern CFOs would agree. In fact, when asked about the deciding factors that lead to the implementation of internal reporting within our company, High Alpha CFO Blake Koriath said:
“We rolled out internal reporting to departments at High Alpha to facilitate visibility and ownership. With more financial visibility, leaders at the company are empowered to make better decisions for their domains, which enables them to work quickly and efficiently. ” – Blake Koriath, CFO at High Alpha
Though the company budget is elegantly designed and packaged in a secret room with the CFO, those who must mobilize the budget are dispersed throughout your company, seemingly unaware of the rippling effect of upgrading the office coffee to a fancy imported French roast or adding an additional seat to an already hefty software subscription.
A well-informed department leader would understand that there is a cost effect for their decisions. With access to financial reporting, they can quantify that effect.
High Alpha Director of Marketing Drew Beechler is all too familiar with strategic spending and shared his opinion on the usefulness of internal reporting:
“In order to be a strong leader and fully understand the impact your team and individual responsibilities have on the broader organization, you need to have great business acumen and a full understanding of how you fit into the larger business strategy. You can only do that if you have a tight grasp on the finances and operations of your own department — knowing where you’re investing resources, where you should be investing more/less, and being agile enough to make quick decisions to adjust in real-time with how you’re investing the resources entrusted to you.” – Drew Beechler, Director of Marketing at High Alpha
High Alpha Senior Real Estate Manager Amanda Carroll echoed similar sentiments as she expressed how financial visibility has helped her be more tactical with her resources.
“The internal reporting provided at the departmental level encourages a culture of critical thinking, curiosity, and transparency. The report allows me to truly understand holistically how my department is spending money and make data-driven adjustments as needed. The monthly report encourages me to take full ownership over department spend and make strategic business decisions based on real-time metrics.” – Amanda Carroll, Senior Real Estate Manager at High Alpha
Three Tips to Achieve Financial Transparency
For those finance leaders that are still on the fence about the need for visibility, consider our framework below that has helped improve our team’s efficiency and effectiveness.
Determine what to share
Tailoring reporting to be concise and applicable is key to meaningful financial communication. When it comes to internal reporting, sharing the consolidated financials should only be the starting point. Give each department leader filtered data that is specific to their own revenue streams and expenditures. This not only provides the tools needed to make and gauge decisions over time but also shows how each department fits into the larger objectives of the company as a whole.
Pick a schedule and be consistent
Whether it’s after the monthly close or pushed out as quarterly reporting, an established routine will help department leaders know when to expect updates and factor in the time needed to diligently review their data for accuracy.
It is important to note that financial literacy may not be a strength for some of your most talented managers. Your job is to provide the numbers and be ready to help explain what they mean. Engage your audience by asking for feedback. This creates a comfortable environment for them to ask questions and develop their financial analysis muscle. In return, this engagement provides useful insight when it comes to preparing the future company budget or evaluating past performance. Engaged managers are more likely to purposefully manage their budgets while providing timely communication on any major adjustments.
Planning for internal reporting should coincide with planning for growth. As a company rapidly shifts from early-stage to growth-stage, specialized skills become siloed into departments and spending decisions become less and less centralized. An internal reporting game plan equips your team to work independently while simultaneously in line with the company’s overall vision. Access to this insight, increases accountability and ownership, while also empowering decision-makers with the confidence needed to adjust without bottlenecks.
It is overly stated that to make money, one must spend money. But the important notion that strategic spending is the actual key to successful and sustainable growth is often overlooked. With the right insights, every department has the ability to strategically manage its resources.