Financial Reporting Basics

This post is for clients only, but if you do not have a relationship with G3CFO, you can certainly read on if you like. The short version is why G3CFO creates comprehensive reporting packages and who those reports are designed for. The answer may surprise you.

Why My Clients Hire Me

I have a framework called The CEO’s Core Four™ and The Owner’s Core Four™. I have both because I have clients who are both CEOs and non-owners. Yet, the core four reasons CEOs and owners hire me remain the same:

1. They (the owner or CEO) want a business they love that does not enslave them.
2. They want a leadership or management team they can trust.
3. They want peace of mind about a bigger and better future.
4. They want a business envied by outsiders that grow in spite of them.

When I started my Direct Access CFO™ practice years ago, I thought most owners hired me for my financial expertise. That was certainly one reason. But about ten years ago, I started peeling back the sliver skins of the onion to understand why every owner or CEO hired me. It was for one or all of the four reasons mentioned above.

My business and financial acumen were the icing on the cake. Owners and CEOs saw something in me because, in the early conversations with them, I was addressing ideas and suggestions on how to fulfill the objectives of their core four. While my marketing, sales, operations, and financial insights were needed, they saw my bigger picture of their world intersecting with theirs as a way of achieving their core four faster.

My Unique Process

Now you know my secret if you are a fellow CFO providing consulting services. Everything I do can always be traced back to The Owner’s Core Four™.

I’m also a guy who has a ton of tools in his hip pocket. The typical client has probably seen 25-50 percent of my tools, even over a five-year period if the relationship lasts that long. That’s because tools are just tools; they are never the main thing. They are a means to an end.

One of those tools is my unique financial reporting package. In any financial relationship, I build a comprehensive set of financials so that I can better understand the business.

Why do I do this if every accounting package already has built-in reports?

First, have you looked at QuickBooks reporting lately? I’d fire a staff member if they ever emailed QuickBooks reports to a banker or insurance broker. They are atrocious. Plus, most internal bookkeepers have zero accounting acumen, so the account structure is generally a trainwreck. Also, where there are no accountants on staff, even a CEO can clearly tell when certain accounts are inaccurate. All of these reasons prompted me 20 years ago to create my own reporting–but it’s never the selling point, it’s a conversation and strategy tool for me and my CEO.

In short, my reporting IS NOT for the CEO. It’s for me. CFOs are professionals who should be able to be the CEO for any business they serve for one entire year without sales dropping, profits dropping, customer loyalty dropping, and without employee morale taking a hit. Also, the business value should increase during that year. That’s a CFO.

Because I believe in that definition of a CFO, that means I need clear and impactful reporting so that I can offer help with The Owner’s Core Four™. Without that reporting, I cannot be a great mentor, coach, or business leader.

I’ll state it again, the reporting is not for the CEO, it’s for me.

G3CFO Is Not an Accounting Firm

Needless to say, CEOs and owners love my reporting. Bankers do too when I share it with them. Ditto for private equity firm managers, business brokers, and other third parties.

But let’s put the brakes on for a minute.

My reporting was NEVER intended for third-party reporting. The document is nothing more than a tool for me to go over with the owner and his/her leadership team on a monthly or quarterly basis. In cases where we have open-book reporting, we share the same financial package with team members because they can better understand my reporting as opposed to what’s available in any accounting package.

I do allow my reporting to be shared with bankers under one condition–that I’m the one sharing with the banker. I’m clear in my first banker meeting that these are not audited or reviewed, just compiled.

In many cases, I still have clients where accounting is a sinkhole for numerous reasons: apathy, laziness, lack of interest, ineptitude. When that’s true, I let the bankers know this. That’s why cash flow reporting takes a front seat in these reports because operating cash flow will give a banker comfort when our accrual numbers are a mess.

On a side note, my best clients use my month-end closing checklists. When they do, it’s only then that I have confidence in the reporting. And in the cases where clients with degreed accountants are using my checklist, I let the banker know about our month-end closing process. Such a process followed with diligence is 10x better than any money wasted on a full-scope audit.

So let’s summarize this section:

1. Never pass on financials to a banker that I provide. Remember, you never hired me to do financials. It’s something I do to better understand your company. I use that same reporting in our monthly meetings so that we can see how we’re doing and what needs to be worked on. Imagine having the same meeting monthly, but using the numbers from your own accounting system. Would that be a very insightful meeting? I thought not.
2. In special cases, you can share the numbers, but only under my approval. Remember, I’m not a CPA firm. Are you going to be as transparent as I am when I share my reporting with a third party? More than likely, you will not. Now then, if you want to burp out reporting from your own accounting software, go ahead, but I don’t recommend that. You’ll lose credibility when you share that type of reporting with a third party. They’ll think your financial acumen is poor.
3. Remember, reporting is only as good as the person doing the clerk work and accounting. If you ever hear me say, “I have no confidence in the numbers,” you need to be worried. The month-end checklist along with daily and weekly process checklists lead to excellence. Want to know the people who resist these tools the most? Clerks, bookkeepers, and degreed accountants. It’s either because they are over-worked or they think they are not important (which is a red flag). Want good reporting? Then go upstream – get good accounting.

The Evolution of G3CFO Reporting

The month-end report has never been the main thing in my world. It’s about what needs to be done now and how we’re going to get there. For clients under my gold package, you already know about the modeling that I host in the cloud.

About 3-4 years ago, I started transitioning away from businesses who do not have a degreed accountant. That’s because the majority of my clients are growing fast. Without even decent to average accounting, data and insights are a mess. Since the backstage supports the front stage, I’ve chosen to work with owners who take both stages seriously. They get it. Plus, it’s less of a headache for me.

Secondly, I started transitioning my gold-tiered clients to hosted financials where the main focus is an integration of actuals, planned performance, and forecasting. So that means no more comprehensive financial packages. That’s not completely true–everything you’ve seen in the static reporting will be aviable in the dynanmic financial modeling tool with actuals and forward-looking data.

But why not do that for owners on the other tiers? Soon, that will be a reality.

I would have loved to have done this 20 years ago. I couldn’t. The tools either didn’t exist, or they were lacking in the right technology and key features. Finally, we’re getting there.

Regarding my evolution of the G3CFO reporting, even these changes augment any initiatives associated with an owner’s core four.

Do You Only Want Someone to Do Your Reporting?

Good luck on that. I’ve yet to see an accounting firm publish what I do. I train other CFOs around the country. Most have not done anything close to what I do.

But that doesn’t mean certain professionals don’t exist. You don’t hire a Direct Access CFO™ for financial reporting. That’s never the main thing. However, elite controllers are focused on accounting and reporting. Do a search on outsourced CAOs or controllers.

By the way, my focus during the first five years of my consulting practice was outsourced controllership work. I loved it. But I loved business far more. That’s why I left that world behind me.

If reporting is your biggest need, now you know where to start looking (or apply the proper search criteria).