Using a Monthly Financial Review Checklist to Monitor Your Business's Overall Health
Activity for activity’s sake is pointless. Only activity that’s directed at achieving BIG outcomes truly matters.
CEOs who can’t make this distinction waste too much time chasing shiny new objects and putting out fires. They’re reacting rather than leading with planned, purposeful action that’s designed to hit targets and continually generate growth. And because wasted activity is usually expensive, these CEOs are also far too quick to abandon annual plans or shrink ambitious targets the first time a KPI dips or a marketing initiative doesn’t catch fire.
A monthly financial review can help to keep your plans and your available resources in sync, while also shining a spotlight on any activities or subpar employees who could be dragging you into the red. Here’s how to get started.
Gather the data you need.
Far too many underperforming companies think that a financial review is just something that the accounting department does every spring before Tax Day. Even if the CEO and CFO are checking the company’s financial situation every day, checking over your numbers isn’t the same as opening up your books and digging into the overall health of the business.
Monitoring cash is a CEO-level responsibility. To properly execute that responsibility, you need to have a complete view of your company’s financial situation every single month. If you’re a startup or a smaller company without a dedicated accountant, go get one. No matter how cash-strapped you might think you are, a reliable bookkeeper is a necessary investment. Consider starting with a fractional accounting and/or CFO firm that can properly close your books each month and generate department-level monthly budgets. This information is critical to managing a high-growth business. Without it, you are flying blind.
CEOs of larger companies with dedicated financial teams need to make a monthly financial review a high priority and a regular part of their meeting rhythm. Get together with your CFO and the leaders of your finance department. Refer back to your annual plan and the KPIs you all agreed were going to lead the company to its BIG annual targets. If a monthly financial review is new to you, a good place to start is with a monthly comparison of actuals to budget and a full set of financial statements (Balance Sheet, Profit and Loss and Cash Flow). If cash is tight, it’s especially important that the data your team collects will help you understand your cash runway.
We also encourage our entrepreneur coaching clients to look at the following financial indicators on a rolling 12-month graph to spot trends and take corrective action:
- Gross Margin
- Cost of Acquiring a Customer
- Operating Expenses by Department
- Net Margin
- Efficiency metrics unique to your business (e.g., utilization rates, revenue per employee, conversion rate, average revenue per client, churn, capacity utilization, asset turn over, etc.)
Set clear expectations with your team about the data you want to see at the end of every month.
And finally, get that meeting on your calendar.
Ask the right questions.
There are many ways to be an effective CEO. Having an MBA and living and breathing numbers aren’t necessarily job requirements. But if you don’t understand the key trends that are helping or hurting the company’s performance, a bold vision and an empathetic touch with people aren’t going to keep you from going broke.
Again, Cash is a CEO-level responsibility. So is Learning.
If corporate finance isn’t your first language, our Monthly Financial Review Checklist can help you gain some basic fluency. It also provides a four-part structure that will help you and your team get more comfortable with this review process. Some sample questions you need to address every month include:
1. Big Picture Overview
- What is the long-term strategy of the company and what are we doing to get there?
- What is the best allocation of resources to grow revenues? Is now the right time to hire a….?
- How do my daily decisions fit into my near-term, mid-term and long-term plans? Make sure you consult all three plans whenever you are making a “lane change” in your business.
- Is our budget healthy? If not, what drivers are pushing us overbudget? Is there a surplus in one area we could deploy to improve an underperforming area?
2. Balance Sheet
- Are there potential cash shortfalls for the next 12-months that need to be addressed?
- Can you influence your Days Sales Outstanding to reduce your cash conversion period?
- Are there any revenue streams that have not been captured and are potential unrecorded receivables?
- How can we reduce our Days Payable Outstanding?
3. Income Statement
- What steps can be taken to improve profitability?
- What KPIs are key to your success and should be monitored regularly to identify changes and issues?
4. Cash Flow Statement
- Are there any actions you can take to enhance your cash from operating activities?
- How are you managing your nonoperating cashflows?
- What are the appropriate solutions to address cash issues?
Monthly Financial Review in action.
CEO Coaching International Partner Tracy Tolbert spent a large part of his career in management at ACS, a publicly traded Fortune 400 company later acquired by Xerox. “The senior business leaders at ACS managed the company through monthly financial reporting,” Tracy says. “As a multibillion-dollar company, we had to stay very close to the numbers to continue to grow. The Monthly Financial Performance Review was integral to our success.”
Because ACS had several large divisions, anyone in the company who owned a Profit and Loss Statement participated in the meeting, along with the CEO, COO, CFO, and Head of Sales. In the review, they would compare the last month’s financials not only against their original plan, but also against the same period in the previous year.
This level of analysis may not be necessary in your company. As you implement a Monthly Financial Performance Review, set its content to cover the most important metrics in your business and adjust the format to fit your business’ needs.
No matter what, do not skip this rhythm. Because he was so diligent about reviewing finances, Tracy was able to take the next step and implement a managed growth strategy that kept his company on a path to increased profitability without straining its resources.
In Tracy’s words, “Reviewing finances each month is critical in every single business.”
Download the CEO Coaching International Monthly Financial Review Checklist
When you make a monthly financial review a part of your best practices, you’re giving yourself an opportunity at the start of every month to challenge the assumptions behind your current strategy, analyze trends, and adjust as necessary.
Click here to download our Monthly Financial Review Checklist. Familiarize yourself with the questions, work with your financial team to get them answered, and commit to a new monthly process that will help you make BIG happen.
About Mark Moses
Mark Moses is the Founding Partner of CEO Coaching International and the Amazon Bestselling author of Make BIG Happen. Mark has won Ernst & Young’s Entrepreneur of the Year award and the Blue Chip Enterprise award for overcoming adversity. His last company ranked #1 Fastest-Growing Company in Los Angeles as well as #10 on the Inc. 500 of fastest-growing private companies in the U.S. He has completed 12 full distance Ironman Triathlons including the Hawaii Ironman World Championship 5 times.
About CEO Coaching International
CEO Coaching International works with CEOs and their leadership teams to achieve extraordinary results quarter after quarter, year after year. Known globally for its success in coaching growth-focused entrepreneurs to meaningful exits, CEO Coaching International has coached more than 1,000 CEOs and entrepreneurs in more than 60 countries and 45 industries. The coaches at CEO Coaching International are former CEOs, presidents, or executives who have made BIG happen. The firm’s coaches have led double-digit sales and profit growth in businesses ranging in size from startups to over $10 billion, and many are founders that have led their companies through successful eight, nine, and ten-figure exits. Companies working with CEO Coaching International for two years or more have experienced an average EBITDA CAGR of 67.8% during their time as a client, nearly four times the U.S. average and a revenue CAGR of 25.5%, more than twice the U.S. average.