What should I expect from my controller?
Here are a few reasons to have someone who can analyze financial information for you
As a coach, I get asked all the time: “What should I expect from my controller?” Your controller should be a person on your management team who provides you with critical financial information, so that you can make the right decisions for your business. It is crucial to have your controller provide you accurate, on-time, and clearly designed financial reports. If you are not getting reports from this person, or the reports you are getting are inaccurate or late, how is it possible for you to make the right decision? We make decisions every day based on where we think the business is.
Think about these questions for a moment: “Why are margins lower than expected?” “Do I need a new truck to replace an old truck?” “Should I make a pre-order of stock at the beginning of a season?” “Do I need credit terms or discounts?” “Why are our numbers so different from last year?” “If we can improve a margin, what will the earning impact be?” Too often, I see contractors making these decisions without having all the information needed to make the correct decision. If your controller is providing you with the right information, these decisions are much easier to make and better solutions will be the result. So, what information should you be getting? I have sorted the following reports you should be getting into two different areas: weekly and monthly. If you are already getting some of these reports on a routine basis, you still need to ensure you are getting the level of detail you need on each.
Forecast. A best practice that is generally not seen in the trades is to have a weekly forecast that uses current pacing for revenue and looks at your job costing reports to estimate direct expenses. Couple these together with your overhead expenses (most overhead expenses don’t change much from month to month) and you now have a forecast for profits as you move through the month instead of getting it all in retrospect. Of course, this forecast should be more accurate as the month ends, but having this information starting in the second week of a month is beneficial in making decisions as the month is progressing. This way, you are not waiting until the next month to get the closed profit and loss statement.
A/R report. Not getting an accounts receivable report weekly is something that can cause major cash problems. I know, I know, we all are COD right? This may be true, but how often do we handle items like bounced checks or finance a job with a third party? Many companies have an accounts receivable report which shows the customer and how much they owe. I would challenge you to get this report with the technician’s name, the reason for being on the report and a list of last times contacted. With this information, you can see why we have accounts receivables instead of just who owes us.
Job costing reports by salesman/install crew/technician. If you are not looking at your job costing reports each day, you are missing out on a great opportunity to increase your profits. In addition to a daily look at them from a general perspective, I would encourage you to look at these same reports weekly—but this time, have the full list of jobs for the week sorted by install crew and salesman. If your margins are not where you expect them to be, these reports will show you which crews are taking too long to complete their jobs or whether a salesman is selling the jobs at the correct margins.
Timely reports. Having timely reports is one of the most critical components in reporting, yet many contractors allow reports to be late. Do you have an expectation for when your reports should be completed? Are you holding the controller accountable to this expectation? I like to see the profit and loss reports complete no later than the 10th day of the following month. The size or structure of your business really does not matter; if you are not getting your monthly statements by the 10th of the month, you may be making decisions on data is that is not showing you exactly what is happening now. Ten days in the service industry can make huge swings in your margins.
Accurate data. Another item I see as a common issue in accounting is accurate data. I look at many financial statements each month and almost always have questions about the accuracy of some of the data. Your controllers should know how to identify these inaccuracies before the statements reach your desk. If you are asking numerous questions about the statements each month, your controller is not doing the job of a controller.
Profit and loss statements, complete with proper accruals. If you are not accruing your payroll, purchases, marketing spend, and more, you are not getting an accurate picture of your month. We must match the expenses with the income.
Balance sheet with some ratio analysis. How many times do you really look at the balance sheet? If you are being honest, you are probably like most contractors and do not because you are not an accountant. Your controller should explain the balance sheet accounts to you and what they mean. Most of this can be done with ratio analysis. At a minimum, you should get the quick ratio—this ratio is a liquidity ratio. Basically, it tells you if you have enough cash to pay your current liabilities. A good controller will give you all this data so you can make the best decisions for your business.
Cash flow statement. You should always know where your cash stands. You cannot simply look at profit and loss statement to determine cash. You can be losing cash and making good profits. A cash flow statement will tell you what cash you have and where it is going.
Notes to the financials. If I showed you a set of financials from a year ago, could you tell me exactly why we did or did not achieve goals? More than likely, you will not remember what happened unless it was an extreme or abnormal situation. You should be getting some notes to the financial statements that give more detail to why we hit goals or why we missed.
These practices are just a start to getting more informed financial information and being more proactive with your accounting practices. If you are not getting this information, you simply are not getting enough information to make sound business decisions.