Preparing financial statements that comply with accounting standards can take anywhere from two to six weeks. The process can be even longer if an external accountant reviews or audits the reports. However, timely information is essential for making informed business decisions and adjusting strategies when results deviate from expectations. To gain quicker insights, many proactive managers rely on flash reports.
The Advantages of Flash Reports
Flash reports offer a quick snapshot of key financial data, such as cash balances, receivables aging, collections, and payroll. Certain metrics, like sales, shipments, and deposits, might even be tracked daily. This is particularly valuable during peak seasons, significant transitions, or when a business is facing financial challenges.
An effective flash report is straightforward and comparative. If it takes more than an hour to prepare or requires more than a single page, it may be too complex to maintain consistently. Comparative flash reports can reveal patterns over time or highlight deviations from the budget that require immediate attention.
The Limitations of Flash Reports
While flash reports can highlight problems and areas of weakness, they do have limitations that management should consider to avoid potential misuse.
The most critical limitation is that flash reports provide a rough estimate of performance and are rarely 100% accurate. For example, cash balances and collections may fluctuate throughout the month due to varying billing cycles.
Flash reports are typically used for internal purposes and are rarely shared with external parties such as creditors or franchisors, unless required in specific situations like bankruptcy or as part of a franchise agreement. A lender might also request flash reports if a business fails to meet liquidity, profitability, or leverage covenants.
If flash reports differ significantly from the final financial statements that comply with U.S. Generally Accepted Accounting Principles (GAAP), it could raise concerns among stakeholders. They may question whether the discrepancies are due to inflated results in the flash reports or a lack of expertise in financial reporting. If you do need to share flash reports, consider including a disclaimer that the figures are preliminary, may contain errors or omissions, and have not been prepared according to GAAP.
Customizing Flash Reports for Your Business
There is no universal format for flash reports. For instance, billable hours may be more relevant for a law firm, while machine utilization rates may be critical for a manufacturer. Reach out to us for assistance in customizing your flash reports to focus on the metrics that matter most for your industry. We can also help address any reporting concerns you might have.
For more information, please reach out to your Accavallo & Company Team Member, or [email protected]/ (203) 925-9600.
