The Quarterly Discipline of Public Companies

Can you imagine what would your life be like if your business was a publicly traded company, and you had to issue formal earnings reports and business updates every quarter?

How would you manage your company differently if all of your decisions and results were analyzed by shareholders, regulators, and others every quarter?

I think your life would be better if you adopted the planning and communication practices of a public company, but definitely remained a private company. Here’s why and how.

Public companies are required to report the following information every quarter:

  1. Quarterly unaudited financial statements (and annual audited financial statements) which are certified by the CEO and the CFO, compare results to plans, and discuss future plans.
  2. Management discussion and analysis, or “MD&A,” which presents the strategy and plans for the company.
  3. Certifications over disclosure controls and procedures (“DC&P”) and internal controls over financial reporting (“ICFR”)
  4. Any acquisitions completed and possibly the financial statements and pro-formas.
  5. Other documents (see Ontario Securities Commission for more information).

Today, we’ll discuss financial statements and forecasts.

In the past, some smaller businesses that I’ve worked with traditionally prepared their budgets—often after the start of the new year—because the bank asked them (or told them) to do it. Unfortunately, they didn’t use the budgets as a management tool to guide their decisions.

The best companies that I’ve worked with don’t prepare budgets just to make the banker happy. They use their budgets and strategic plans to guide their business. Reporting to bankers is only a fraction of the useful and valuable information that management uses to run and grow the business.

Financial Statements and Forecasts

Your financial statements and forecasts include what happened in the last quarter and, more importantly, what you expect to happen in the future.

Figure 8.1 Financial Statements and Forecasts

The balance sheet represents your financial health at a point in time. Many entrepreneurs grew their businesses by focusing on their income statement and on generating sales. But bankers and investors look at your balance sheet health as it shows the results of your successes (or not) and how you manage your assets. Balance sheets represent value to shareholders.

The most important part of financial reporting is setting the targets and plans for the future. Although it’s difficult to hit your sales targets perfectly every quarter, consistently failing to do so indicates a serious problem. Generating stable sales, margins, and cash flows is a sign of a healthy company where management is firmly in control.

In conclusion, one of the most important things you could do to improve your results is to think and act like a public company in terms of setting clear financial targets for the next quarter. If you’re aiming for something, you will have a greater chance of hitting the target.

To discuss how I can help you improve your financial reporting and forecasting so that you can increase your revenues, profits, and valuation, please give me a call.

Thanks for reading!

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