There is so much competition for our attention in today’s information filled environment. Learning to effectively communicate through small financial reports (dashboards targeted to the end-user) is essential to staying above the noise and getting your message across.
Communicating financial messages is inherently difficult. Generally people equate numbers with negative feelings. These negative feelings come from past experiences of confusion, trouble, fear, and apprehension when confronted with the task of interpreting financial reports. There is only one goal to keep in mind; add value while removing apprehension and confusion. You know you have it right when users welcome the reports with a sense of trust and familiarity.
Trust in the financial reports does not mean only a rosy picture. It means accurate, competent financial information available in a format that is easy to comprehend and helps fiduciary and vested users to do their jobs.
Trust in financial information is hard to earn and easy to lose. Without trust, the financial information will be automatically ignored and pushed aside. So trust has to come first. The best designed reports will be quickly dismissed if the numbers are not inherently trusted by the user so maintaining superior core accounting systems is a given. If non-financial managers are talking about the accounting system, it is usually because the system is not working effectively and trust has been lost. Smooth, high performing accounting systems appear to run unnoticed because of their quiet efficiency. Problems make noise while accuracy provides for a smooth ride.
Although trust has to always be maintained, getting trusted information into user-friendly formats becomes the next focus. This means designing reports around user core needs that are inherently understandable. This brings us to the design phase of building successful small financial reports and dashboards.
There are two key considerations in the design phase; first, condensing the information and streaming out noise and second, including information metrics that are synergistic where together the parts tell a story that separately would not be apparent.
Accountants tend to include massive amounts of information because they are comfortable working in an environment where data mining on multiple levels is natural to them. The problem is that these same accountants are the builders of financial reports, and they ignore who the end-users are and how they process and use financial information. Consequently, we need to stress the needs of the primary end-users.
The end-users (management and board members) must engage directly with the accountants explaining what financial information is critical to their decision making process. The information needed is bottom-line driven with an eye on the budget. Also historical and budget comparisons are used for revenue and funding sources and expenses. Compacting revenue and expense lines into board categories is required to fit the information into a small space. The accountants will continue to produce the regular monthly financial reports that have all the details as backup to the small financial report. Knowing this, the accountants will be amenable to helping you compact financial reporting with the competing confusion or noise is eliminated from numerous small line-items.
The end-users also need to see how their management decisions have impacted the financial health of their organization. Including a snapshot of the balance sheet will allow them to monitor reserves and see how assets and liabilities are changing. The same compacting approach is used consolidating balance sheet accounts grouping line-items so movement of large groups of accounts is easy to detect and see.
Finally, a space is set aside in the small financial report for other key financial and non-financial indicators. This space is reserved for statistical numbers that complement the income statement and balance sheet in a synergistic manner. This statistical information could include the number of new members, number of returning donors, number of pledges in the system, early-bird registrations, and other key statistical drivers for an organization. This space can also contain balance sheet drivers, for example an aging on accounts payable and performance returns compared to benchmarks for long-term investments.
What results from this process is a one-page small financial report that is easy to read and includes a condensed income statement with budget comparisons across the top with a compacted miniature version of the balance sheet in the bottom left hand corner. The right hand lower corner is reserved to display key financial statistics. As an example, a nonprofit organization could then observe that their revenue in the income statement section is tracking close to budget while program expenses are over budget causing a deficit (a negative change in net assets). The user might feel comfortable with this result if they can see in the left hand lower corner that the balance sheet has significant unrestricted net assets, and they have only dropped slightly from the beginning of the year. While in the right hand lower corner, they can see that the number of new members and registrations for events are increasing over last year. The conclusion would be that revenue is stabilizing while the investment in programs is paying off with increased participation and the balance sheet has not been materially affected.
Board members and senior management will look forward to having a single page small report each month that will allow them to easily overall monitor results compared to budget while clearly seeing if the health of their organization through the balance sheet is being impacted and if progress is being made related to key financial drivers related to critical mission areas.