Why Speed is Essential in Your Business' Financial Reporting
This is a guest post from our friends at Bookkeeper360, experts in tech-driven accounting solutions for business owners that want more time back to focus on their business.
When you boil down financial reporting, you find two vital elements for your business—accuracy and speed.
If you’re an owner or financial professional at an ecommerce organization, financial accuracy is a well-understood aspect of your business. That said, speed is just as important. Especially for online retailers.
But what does “speed” look like? And how do you achieve it in a way that turns your reporting into a decision-making asset for growth?
To answer, this article discusses two types of speed:
- Speed of data
- Speed of business
Speed of Data
Data is available incredibly fast nowadays.
“Real-time”, “hourly”, and “daily” are common words to describe when transactions, fees, and expenses are posted to their respective accounts. All you have to do is have an account to receive the data quickly.
So, what’s the problem?
Connecting and compiling that data into a usable format (aka: reporting).
The new frontier in speed is tools that can pool these hoses of data together into a valuable (and useful) pool of information for their business. One example is the pipeline between sales transactions and determining the margin.
A few basic types of individual sales data include:
- Transactions
- Fees
- Cost of goods sold - COGS
All of this data usually funnels through a financial institution before ending up in a general ledger (QuickBooks Online, Xero, Sage, and so on). From there, you or your accountant has to determine the COGS and other factors, to reach your margin.
Playing to the speed of data means every step from transaction to end result is automated.
For instance, if you’re using A2X, transactions run through A2X which compiles the revenue, fees, product categories, COGS, etc. Then, the app translates that data directly into your accounting ledger (i.e. QuickBooks Online, Xero, Sage).
How do you improve the speed of data?
Adopt and Utilize Technology (Don’t Just Have It)
Key stat: In one 2020 study, more than 60% of CFOs expect to increase the adoption of financial tech (Fintech) in their respective organizations.
One benefit of the startup age is readily available, super useful, and surprisingly affordable software tools.
In other words, the democratization of financial apps for a couple of hundred bucks a year. Many accounting firms and ecommerce companies have several financial tool subscriptions.
The problem? They don’t really use them.
At least not to the extent possible (some data suggests 75% are underutilized).
This is kind of the opposite of “shiny object” syndrome. Sure, you buy something because it sounds useful, but instead of that object being useless, it’s just not being used.
Solve this problem by learning and adopting tech that:
- Condenses the number of human steps in a report (e.g. Automate from transaction to gross margin, without having to touch a button).
- Employ tech that reduces the need for things like custom spreadsheets.
- Figure out how to segment data and create automations so reports generate automatically (anytime they’re needed by you or your clients).
3 Best Practices for Adopting Fintech
- Read up and understand features: Many apps market the features easiest to convey. It’s often the tip of the iceberg. Really dig into the features and integration pages and see how this tool benefits you and/or your clients when fully implemented.
- Use the available resources: Once you have your list of must-have features, you can move through the documentation. Knowledge bases, video tutorials, and resource centers typically help you find needed information.
- Get expert help (if needed): The most intricate and useful tools often have experts willing to set up infrastructure and get things moving quickly. If you’re crunched for time, or less-than-tech-savvy, it’s a solid option.
Speed of Business
The other aspect of speed is that of your business.
With constant variables like inflation, legislation, and industry trends, many potential events can change the face of ecommerce — and quickly.
One example is a recent announcement for businesses to report certain crypto purchases. The point is, business sometimes changes as fast as data moves.
Now, imagine improving the ability to adapt and overcome potential hurdles with things like rolling forecasts and models that you can augment “on the fly”.
How about another example?
Right now, the economy is sending mixed signals. There are multiple ways the next 12-36 months could play out. Now, imagine incorporating valuable metrics (that drive your business) into a few scenarios to project potential outcomes in your company’s future.
Metrics like:
- Site traffic/conversion rates
- Previous sales data
- Marketing spend
- Average profit margin (in case you need to lower prices)
Then, you take those figures and run them through a few scenarios:
- Increase: This is the ideal scenario where your company keeps growing and you plan to hit your sales targets.
- Flat: Things stay the same. For example, the price of goods goes up, but demand stays the same.
- Decrease: You experience a decline in sales, to varying degrees.
So, how do you adapt to the speed of business?
Get Agile with Your Finances
Key stat: That same study, from McKinsey and Company, found that nearly 7 in 10 CFOs plan to adopt “agile” methods, like rolling forecasts.
You may realize now that the speed of data goes hand in hand with the speed of business. It’s impossible to use data for decisions if it’s not available when you need it.
That said, there are a few specifics to have key data at your fingertips when you need it.
3 Best Practices for Agile Financial Reporting
- Track necessary metrics: The right metrics are canaries in the coal mine. Over time, they’ll give data that tells you if you’re hitting goals or that trouble could be on the way.
- Use rolling forecasts: A “rolling” forecast is one that uses previous actual data (e.g. sales) to predict future performance with increasing accuracy.
- Recognize trends through regular checkups: Rolling forecasts and tracking key metrics also quickly shows you how your business is performing. Over time, if you check your reports regularly, you’ll recognize trends which could be used to improve performance or mitigate downturns (because you saw them coming sooner).
Speed is Essential
Amazon, Ebay, Etsy, Walmart and other platforms provide really accurate data. They even do so relatively quickly. It’s up to you, or your accountant, to take that information and turn it into meaningful reporting.
If you can do that, your business finances will move from being a necessary chore to a valuable decision-making tool.
