Weekly, Monthly, Yearly? Which Financial Period is Right?

Financial Frequencies - Zoom In / Zoom Out

There are probably 30-40 skills required to be a finance/accounting pro, but to manage a successful business you really only need to master maybe 10 or so... today we'll cover one of those 10 skills...

I call this zooming in and out on your business. It will help you see the bigger picture (zoom out) and drill down on operational details (zoom in).

When choosing a financial time series to look at, remember: shorter timeframes = lumpier (daily, weekly, monthly) while longer timeframes = smoother (quarterly, yearly). Examples that can cause lumpiness in shorter periods: biweekly payroll, large one-time projects or customers, expenses paid in annual installments, etc.

Let's set the cadence of when to review financials for each time period.

• Everything above the dotted line is in the zoom out bucket, you'll look at these less frequently, but they'll give you a broader view of business performance.
• Everything below the dotted line is zooming in. You're on the ground floor covering operational details. "Chopping wood" as a friend of mine likes to call it.

1. Annual financials – Your full year (12 months) financial statements should get dusted off at yearend for tax prep, forecasting at least the upcoming year, and assessing overall business performance (ratios, etc.). Don't feel compelled to look at this view regularly.
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2. Quarterly financials – A quarter is a period of 3 months' worth of numbers. Especially helpful for seasonal businesses. Remember that quarters are smoother than months. I review quarterly financials at the end of each quarter for a year-over-year comparison and against the past 4-6 quarters. This is a great way to spot fixed expenses creeping higher.
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3. Monthly financials – Now we're into the core periods. Your monthly financials are where you should live. Every month, I take a close look at 12 months of P&L data and compare year-over-year results. Any and every business trend will surface in this review.
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4. Weekly cash flow – Cover your ears accountants... I could run an entire business with just a weekly cash flow statement, that's how powerful the tool is. Look at this each and every week. It will tell you when trouble is around the corner or if things are all clear.
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5. Daily cash – Very few financial metrics need to be viewed on a daily basis. If there's one to look at, it's got to be your daily cash report. A quick pulse on where you stand at the moment.

[Note: We're strictly talking about the cadence of reviewing your financial statements under varying time series here. It would take a much longer write-up to discuss the review cadence for all financial tools and metrics.]

Don't burden yourself with setting hard dates or recurring appointments to conduct these reviews; it doesn't matter whether you do it on the 5th of this month or the 15th of next month. Just be sure to do them and know whether you're zooming in or out on your business.

Here are the key takeaways:

1. Your core reviews fall into the daily/weekly/monthly cadence
2. Longer time periods = smoother results (rarely should you extrapolate a single month's performance)
3. The ability to zoom out for a broader view and zoom in to the day-to-day takes a lot of practice. It may not feel helpful for a while so stick with it.

Homework

This week's assignment – If you haven't looked at a monthly P&L (covering 12 months of information) in a while, pull one up. Look for trends and outliers. Start by flagging any unexpected fixed cost trends, drill down into large spikes up or down, find your consistent revenue streams, etc.

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