Business control and financial reports
"The first rule of business is to protect your investment"
banker etiquette 1775
If at that time investments were protected with weapons in their hands, then in the modern world information technologies become such weapons.
Ten years ago I had several business units. I imagined myself in the future, sitting in front of a dozen monitors, which reflect information about the status of dozens, hundreds of businesses belonging to me. Then I sincerely believed that this was possible (I pressed one button and everything was clear). But the more businesses I got, the less I controlled them. And the more I lost.
The main cause of all the losses was poor business control. Then the question arose:
')
How can you control a business so well as to protect yourself from losses?
I did not find any clear answers to this question from the financiers or accounting programs.
Ultimately, a project was founded, the purpose of which was to create such a system. And this is not about creating only a software product - it needed a new methodology.
Today I am ready to share with the readers of Habr some of my knowledge.
Let's briefly examine what minimal information you need to have in order to control your business reasonably well, and then move on to IT.
1. You need to know reliably, in what condition the business is.
2. You need to know with what results he worked in different periods of time.
Without further explanation, this information is contained in a fairly well-known form, namely the triad of financial statements:
1. Balance sheet or statement of financial position (financial condition of a business).
2. Profit and loss account or statement of comprehensive income (results on an economic basis).
3. Cash flow statement (cash basis results).
In my opinion, the most brief and practical their essence was described by Professor Savchuk V.P. in his book Strategy plus Finance .
If you understand the basic principles of the structure of these reports, then there will be no questions left.
In order to control the business, you need to have an adequately composed triad of financial statements.
Even a large business, with dozens of specialists with their financial departments, faces problems at this stage.
Medium-sized businesses are very difficult to compile these reports, even with super ERP systems. And in a small business you can not even dream about them.
It turns out that to fully control the business is a very expensive and very difficult task.
Now the question for IT: Why? What is so complicated and mathematical in these reports that they are almost everywhere finished in Excel? And do not tell me that ERP normally close this issue.
There is another unpleasant moment. When we own money in a bank, we can monitor the status of a bank account and the movement through it very simply and in real time. But we can fully control the business only once during the reporting period. During this period there are scraps of information that are not suitable for full control. And in our dynamic world, I want to keep abreast of all the time.
But even IT will not help. Here the form of these reports is to blame. We can shorten the reporting period to a month. Shorter periods will not be suitable for analysis. The size of the possible small reporting period is highly dependent on the business.
And here we found the following solution:
The reporting period can be set with any number of days, and the triad of reports can be formed at the end of each day. In more sustainable businesses, you can set 365 days for analysis, and in a dynamic business 30 days. At the same time, the values of the state would be averaged over this period, based on the values for each day in the period, and the values of the results were summed.
Then the control of the business will not only be of high quality, it will be super-high-quality, since it will occur in real time. In addition, the control can be automated. If the values of the triad of financial reports are calculated daily, then all financial indicators (return on capital, return on assets, asset turnover, liquidity, etc.) can be calculated as well. It means that it is possible to determine in advance the limit values of a set of indicators, and the program will report violations automatically and precisely at the very moment when the problem arose.
I became a hostage to this idea.
A small case from practice:
At one of my enterprise, wanting to interest the manager in optimizing the stock of goods, I came up with the following scheme: the manager’s salary was calculated according to the formula:
20% of net profit - 5% of the balance of the warehouse of goods.
The values of net profit and stock of goods were taken from the financial statements at the end of the calendar month. Six months later, I discovered a negative effect from such an innovation. The fact is that the manager quickly realized that in order for the salary to be higher, there should be as few goods as possible in the warehouse at the end of the month. As a result, he overloaded the warehouse at the beginning of the month and devastated it at the end. The warehouse became even less optimal, since at the beginning of the month it was too full, and at the end there was nothing to trade.
It was necessary to correct the formula, and the value of the remainder of the warehouse was calculated by the average value of the remainder for each day of the month.
It was then that the thought occurred that the whole balance should be analyzed in this way. The state at the end of the period you need to know what is called for reference, but you need to analyze the average values for each day in the period .
To begin with, it was necessary to ensure daily fixation of all financial and business transactions. For example, if an employee works for me on the payout of 50,000 rubles a month, it was necessary to charge a daily piece of his salary in accordance with the number of days in a calendar month. But with these there were no problems. All this is solved by standard algorithms.
The biggest problem arose with multi-currency. Course corrections are a real headache when drawing up financial statements. After all, these reports are in a single currency, they are interrelated and balanced.
As a result of all our research in the project, we came to a very simple conclusion:
The entire complexity of automating the financial reporting process was the accrual of revaluations, of which exchange rate corrections are a special case.
Earlier in the article “Innovative Accounting” I already described in detail the external side of the solution found.
The balance sheet shows the estimated state of the enterprise at the end of the reporting period. Not the fact that but corresponds to the real. So, income and expenses can not be trusted. Money is easier, there are easily controlled balances.
Must be remembered: financial statements provide a link between financial status and income and expenses. This is how the correctness of accounting for all income and expenses is verified. And if the estimated state corresponds to the real one, the income and expenses analyzed can be trusted.
There is only one way to maintain compliance with the calculated and real values of the financial condition - is to check it "live".
The amount of money is easy to check. It is more difficult with values and their assessment, but it must be done. It is necessary to choose the principle of evaluation. For example, for how much I can sell it right now (market or fair value). For debt it is necessary to do reconciliations with all counterparties.
But there is another problem. The reports we make at the time point. But at one moment we cannot check the money, and make an inventory, an assessment of values and a reconciliation with counterparties.
More than a hundred and twenty years ago, the great Russian accountant Yesersky, who created the triple Russian form of bookkeeping, proposed to conduct an inventory constantly. Today felt boots consider the tables tomorrow. Today we check with Ivanov, and tomorrow with Petrov. And there is no need to arrange emergency descriptions at the end of the reporting period.
In my opinion, this is the most practical recommendation for solving the problem of compliance of the calculated state with a real one.
To successfully own a business, you need to control it. At a minimum, we must receive reliable information in the form of a triad of financial statements and be able to understand this format. It is necessary to achieve smaller intervals between these reports, up to monitoring in real time. It is necessary to ensure that the calculated financial condition (balance) is real.
This is a fairly simple, perhaps insufficient, but absolutely necessary formula for successful business ownership.
banker etiquette 1775
If at that time investments were protected with weapons in their hands, then in the modern world information technologies become such weapons.
Ten years ago I had several business units. I imagined myself in the future, sitting in front of a dozen monitors, which reflect information about the status of dozens, hundreds of businesses belonging to me. Then I sincerely believed that this was possible (I pressed one button and everything was clear). But the more businesses I got, the less I controlled them. And the more I lost.
The main cause of all the losses was poor business control. Then the question arose:
')
How can you control a business so well as to protect yourself from losses?
I did not find any clear answers to this question from the financiers or accounting programs.
Ultimately, a project was founded, the purpose of which was to create such a system. And this is not about creating only a software product - it needed a new methodology.
Today I am ready to share with the readers of Habr some of my knowledge.
Let's briefly examine what minimal information you need to have in order to control your business reasonably well, and then move on to IT.
1. You need to know reliably, in what condition the business is.
2. You need to know with what results he worked in different periods of time.
Without further explanation, this information is contained in a fairly well-known form, namely the triad of financial statements:
1. Balance sheet or statement of financial position (financial condition of a business).
2. Profit and loss account or statement of comprehensive income (results on an economic basis).
3. Cash flow statement (cash basis results).
In my opinion, the most brief and practical their essence was described by Professor Savchuk V.P. in his book Strategy plus Finance .
If you understand the basic principles of the structure of these reports, then there will be no questions left.
In order to control the business, you need to have an adequately composed triad of financial statements.
Even a large business, with dozens of specialists with their financial departments, faces problems at this stage.
Medium-sized businesses are very difficult to compile these reports, even with super ERP systems. And in a small business you can not even dream about them.
It turns out that to fully control the business is a very expensive and very difficult task.
Now the question for IT: Why? What is so complicated and mathematical in these reports that they are almost everywhere finished in Excel? And do not tell me that ERP normally close this issue.
There is another unpleasant moment. When we own money in a bank, we can monitor the status of a bank account and the movement through it very simply and in real time. But we can fully control the business only once during the reporting period. During this period there are scraps of information that are not suitable for full control. And in our dynamic world, I want to keep abreast of all the time.
But even IT will not help. Here the form of these reports is to blame. We can shorten the reporting period to a month. Shorter periods will not be suitable for analysis. The size of the possible small reporting period is highly dependent on the business.
And here we found the following solution:
The reporting period can be set with any number of days, and the triad of reports can be formed at the end of each day. In more sustainable businesses, you can set 365 days for analysis, and in a dynamic business 30 days. At the same time, the values of the state would be averaged over this period, based on the values for each day in the period, and the values of the results were summed.
Then the control of the business will not only be of high quality, it will be super-high-quality, since it will occur in real time. In addition, the control can be automated. If the values of the triad of financial reports are calculated daily, then all financial indicators (return on capital, return on assets, asset turnover, liquidity, etc.) can be calculated as well. It means that it is possible to determine in advance the limit values of a set of indicators, and the program will report violations automatically and precisely at the very moment when the problem arose.
I became a hostage to this idea.
A small case from practice:
At one of my enterprise, wanting to interest the manager in optimizing the stock of goods, I came up with the following scheme: the manager’s salary was calculated according to the formula:
20% of net profit - 5% of the balance of the warehouse of goods.
The values of net profit and stock of goods were taken from the financial statements at the end of the calendar month. Six months later, I discovered a negative effect from such an innovation. The fact is that the manager quickly realized that in order for the salary to be higher, there should be as few goods as possible in the warehouse at the end of the month. As a result, he overloaded the warehouse at the beginning of the month and devastated it at the end. The warehouse became even less optimal, since at the beginning of the month it was too full, and at the end there was nothing to trade.
It was necessary to correct the formula, and the value of the remainder of the warehouse was calculated by the average value of the remainder for each day of the month.
It was then that the thought occurred that the whole balance should be analyzed in this way. The state at the end of the period you need to know what is called for reference, but you need to analyze the average values for each day in the period .
To begin with, it was necessary to ensure daily fixation of all financial and business transactions. For example, if an employee works for me on the payout of 50,000 rubles a month, it was necessary to charge a daily piece of his salary in accordance with the number of days in a calendar month. But with these there were no problems. All this is solved by standard algorithms.
The biggest problem arose with multi-currency. Course corrections are a real headache when drawing up financial statements. After all, these reports are in a single currency, they are interrelated and balanced.
As a result of all our research in the project, we came to a very simple conclusion:
The entire complexity of automating the financial reporting process was the accrual of revaluations, of which exchange rate corrections are a special case.
Earlier in the article “Innovative Accounting” I already described in detail the external side of the solution found.
And finally, a very important point in controlling the business of financial statements.
The balance sheet shows the estimated state of the enterprise at the end of the reporting period. Not the fact that but corresponds to the real. So, income and expenses can not be trusted. Money is easier, there are easily controlled balances.
Must be remembered: financial statements provide a link between financial status and income and expenses. This is how the correctness of accounting for all income and expenses is verified. And if the estimated state corresponds to the real one, the income and expenses analyzed can be trusted.
There is only one way to maintain compliance with the calculated and real values of the financial condition - is to check it "live".
The amount of money is easy to check. It is more difficult with values and their assessment, but it must be done. It is necessary to choose the principle of evaluation. For example, for how much I can sell it right now (market or fair value). For debt it is necessary to do reconciliations with all counterparties.
But there is another problem. The reports we make at the time point. But at one moment we cannot check the money, and make an inventory, an assessment of values and a reconciliation with counterparties.
More than a hundred and twenty years ago, the great Russian accountant Yesersky, who created the triple Russian form of bookkeeping, proposed to conduct an inventory constantly. Today felt boots consider the tables tomorrow. Today we check with Ivanov, and tomorrow with Petrov. And there is no need to arrange emergency descriptions at the end of the reporting period.
In my opinion, this is the most practical recommendation for solving the problem of compliance of the calculated state with a real one.
Draw conclusions.
To successfully own a business, you need to control it. At a minimum, we must receive reliable information in the form of a triad of financial statements and be able to understand this format. It is necessary to achieve smaller intervals between these reports, up to monitoring in real time. It is necessary to ensure that the calculated financial condition (balance) is real.
This is a fairly simple, perhaps insufficient, but absolutely necessary formula for successful business ownership.
Source: https://habr.com/ru/post/133692/
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