The level of visibility refers to financial visibility and not just what the management accounts imply. It’s important to stress that management accounts are still prepared for ease of use for accounting personnel. In technology companies, you or your fellow management team may not automatically see the insights that the list of numbers is telling you.

 

If you have a high concern, action should be taken immediately. It may be that your concern is based on instinct that something is just not right. This can be very powerful but is crucial to understand what exactly is not right so meaningful corrective action can be taken.

 

Are you getting the insights you need to make informed decisions?

 

In any operational or financial report, it is the INSIGHTS that are important. Generally, the numbers will change each month or quarter and you may become relaxed or relieved depending on the actual bottom line number. There are a multitude of operational factors that will impact this number. Generally, the bottom line number will :

 

• Fluctuate, sometimes wildly.

• Trend down

• Trend up.

 

In each case, it is vital to understand what is causing the variations and not rely on opinions, or accept market conditions or other such non quantifiable conditions. Even in perceived good market conditions, you could be haemorrhaging cash or underperforming and losing competitive strength.  

 

A trending down is obviously the main cause for concern. It is however, important to understand the context. Are you investing in new technology or facilities to prepare for changing client demands or market conditions? The cost of these investments will impact your results but if you are unclear by how much, then you cannot be certain what is impacting your performance. Have you carried out sufficient investment analysis to determine budget spend per month and when you are likely to see a return/generated income? Do you have budgets? Without a clear understanding of where to “filter” from your results, you may postpone taking corrective action, or worse, take the wrong action in the wrong area.

 

A wild fluctuation suggests some instability in your operations. This may be acceptable and due to fluctuating demands by clients, variable income etc. It may be worth checking how this fluctuation relates to your operational model. If you have structured the operation to provide a steady income stream in a stable market, then fluctuations could be a sign of significant instability. If left unchecked, this could result in some nasty surprises.

 

A trending up is of course very positive. Should you forget about matters and move on to more interesting activities? Up to you, but we would recommend that you investigate ways to further enhance your operations. Generating cash reserves can be a very prudent move in economic uncertainty. More profitability leads to more choices for the shareholders. With a decaying cash position, your choices become much less attractive.

 

What action should you consider taking?

 

This very much depends on your organisation, its current status, the financial pressure the organisation is under and the appetite for implementing any change. To help with a few general suggestions and referring back to the matrix, some options are :