Your Financial Statements Are Looking Backward. Your Decisions Aren't.
TheShenkinLetter
Financial leadership · Board governance · The long game
ISSUE #5 · EXECUTIVE INSIGHT
Board Governance · Leadership · Risk Oversight
Your Financial Statements Are Looking
Backward. Your Decisions Aren't.
Ideas for business owners, boards, and families making consequential decisions.
01 The Big Idea
Most businesses spend a tremendous amount of time making sure their financial statements are accurate.
They should.
Accurate accounting matters.
But accurate financial statements are not the same thing as good financial leadership.
Financial statements tell you what already happened.
Leadership has to decide what happens next.
Over the years, I've walked into plenty of companies with perfectly respectable accounting departments.
The books reconciled.
The income statement was accurate.
The balance sheet tied.
The tax returns were filed.
And management still didn't have a clear picture of where the business was going.
That's because accounting and financial leadership serve different purposes.
Accounting answers questions like:
What did we earn last month?
What did we spend?
What do customers owe us?
What do we owe vendors?
Those are important questions.
But a CEO or board should also be asking:
What will cash look like 60 or 90 days from now?
What happens if revenue misses plan by 10%?
Which customers are actually generating our margin?
When do we need another employee?
Can we afford the next investment?
What financial problem are we likely to encounter before everyone else sees it?
Those are forward-looking questions.
And they require something more than a monthly financial package.
I've always believed one of the most important responsibilities of a CFO is helping management see around corners.
Not predicting the future perfectly.
Nobody can do that.
The job is creating enough financial visibility that management has time to make thoughtful decisions instead of emergency decisions.
That means forecasting.
It means scenario planning.
It means understanding cash.
It means identifying the few operating metrics that actually drive the economics of the company.
And it means translating financial information into decisions people can act on.
A twenty-page financial package that nobody uses isn't sophisticated.
It's just twenty pages.
The best financial reporting I've seen often isn't the most complicated.
It simply answers the questions management actually needs answered.
Where are we?
Where are we going?
What could change that?
And what do we need to do about it?
The historical numbers still matter.
They establish accountability.
They tell us whether our assumptions were right.
But the real value comes when yesterday's financial information improves tomorrow's decisions.
That's the difference between producing financial statements and providing financial leadership.
One reports history.
The other helps shape the future.
02 One Number
13 Weeks
For many businesses, a rolling 13-week cash forecast is one of the most useful financial management tools you can build.
It is long enough to identify approaching pressure but short enough that management can still influence the outcome.
The precise period isn't sacred.
The discipline is.
If leadership can't reasonably explain where cash is going over the next several months, the company probably has less financial visibility than management believes.
03 What I'm Thinking About
Technology is making it dramatically easier to produce financial information.
That will make financial judgment more valuable, not less.
The competitive advantage isn't going to be who can generate an income statement fastest.
Software will do that.
The advantage will belong to leaders who can look at the information, understand what it means, challenge the assumptions behind it, and make better decisions because of it.
Information is becoming cheaper.
Judgment isn't.
04 Office Hours
Take a look at the financial package your management team or board receives each month.
Then ask one question:
What decision does this information help us make?
If the answer isn't obvious, the reporting may need to change.
If you'd like to discuss financial reporting, forecasting, cash-flow management, fractional CFO support, family-office services, or board advisory work, reply directly or schedule 15 minutes on my calendar below.
No pitch. No presentation deck. Just a direct conversation about your situation and whether my experience can help.
