Communicating with Your Board: At-A-Glance Financial Information

This is the third post in my series on communicating with your board.  You can find the previous posts here and here.

Consolodating key financial information on a single page is a great tool for communicating some of the most important data about the company in a quickly-grasped snapshot.  Because of this, it’s not only good for your board, but your employees as well.  Presenting the data this way makes it much easier for an audience to understand the financial health of the company without pouring over the complete set of financial statements.  It also gives you the chance to make clear to your audience what you believe are the highest priority financial metrics for the company at any time.

Creating such summary information doesn’t let you skip the troika of financial statements (P&L, balance sheet and statement of cash flows), but it’s no additional work either – another page in your spreadsheet refering to data in the complete statements almost always does the trick.

While the exact format of such a one-page statement should be discussed with your board, the format below describes one that is used in a company that I work with, proposed by another director.  I’ve come to like it a lot and always keep the spreadsheet on my desk a few days before and after the respective board meeting so I can quickly refer to it as I think about the progress of the company.  It has three sections:

1. Finance
2. Headcount
3. Subjective updates that either have an impact on the current period or will likely have an impact on future periods

I’ll go into each one separately . . .

Finance

As is true for much of the operating life of companies, the focus should be on cash.  As such, you should list the key spending areas of the company – the big line items – and sum them up to come up with the gross burn rate for the previous period.  As I mentioned in my previous posts in this series, it’s good to have numbers for previous periods as well.  You should include the last two (for a total of three) to five (for a total of six) months as a minimum in this table.

Once you’ve established the gross burn, you should summarize any cash infusions into the company.  Generally speaking, these will only include a few line items, like investment income, financings and collections.  By subtracting this sum from the gross burn, you’ll derive the net burn for the company.  Again, this should be reported for the previous months as well.

In this section, it’s also a good idea to list the key balance sheet entries and any bookings numbers (so the forward potential for revenue is observable).  For the balance sheet items, I like to see accounts receivable, accounts payable and any deferred revenues.  Of course, given the structure of the company and accounting methods, other data may be important in this section.  Capital equipment should be included if you’re running a business that requires a lot of it.

Finally, for bookings, you should list the bookings for the previous month, quarter and year-to-date.  It’s also a good idea to list the similar data for comparable periods a year earlier.

Headcount

In this section, you should summarize headcount by department.  There is no reason to break your small company into too many small departments here, you can simply lump them together by function if departments don’t work out.  In the cart, you should list the actual headcount as of the time of the last report, any additions or deletions since then and the current headcount.  You should also list the headcount plan per department and indicate any delta between the numbers.

Updates

Finally, you should add a few lines of important data that either had an impact on this current summary or will ikely have an impact on future performance.  Items like tax filings, lawsuits, delayed products, loans being called, key people leaving or being hired, etc, should be listed here.

So, in the end, the consolodated report will look something like this (Google Spreadsheet):

Again, it’s short.  At the most, it should cover a single page.  It’s also easily derived from the financial statments that you already have – your spreadsheet editor will do all the heavy lifting.  In the end, it will improve communication with your board and your company and it will help to make sure your board is up to speed at all times.

I’ll state again that you should discuss the format of this type of information with your board.  It doesn’t make sense to present a summary that doesn’t fit the specific needs that the group has and the format can be easily changed to make it work well.  As Chris Wand over at Ask The VC says in his recent post, Concluding Thoughts About Good Board Packages,

While it’s tempting to look for an example of a “perfect” board package and then replicate it, the perfect board package isn’t something that can be easily copied because it’s company specific and requires a thoughtful case-by-case approach.