5 Reasons People Struggle With Financial Reports
Do your eyes glaze over when you look at financial reports?
Mine do – and I’ve seen it happen with lots of other people. I’ve talked about this with both ‘producers’ of reports (FDs, CFOs, accountants etc.) and ‘consumers’ (Owners, Directors and Managers).
I found that there are five main reasons why so many people struggle with financial reports:
1. Numbers
Human beings can’t quickly and accurately pick out all the patterns, trends, changes and differences in tables of numbers. We haven’t evolved that way. Some people can learn over time to do this to a limited extent. But even that falls far short of our intuitive ability to interpret visual scenes, or understand spoken language.
2. Jargon
Accruals, amortisation, creditors, aged receivables. These are only a few of the terms used in financial reports that can confuse people. Especially when some have a different meaning in accounting to what they mean in normal language. When there are more than a couple of jargon terms into a piece of text, our brain starts telling us ‘cannot compute’ and gives up trying to understand it.
3. Structure of Reports
There are many kinds of financial report – Xero has over 70, many of which are configurable. Each contains a particular set of accounting data, presented in sections with a defined structure. Every section of each report, and its relationship to other sections, has a particular significance. So it’s challenging for non-financial staff to learn about and understand the full range of reports they receive.
4. Lack of Analysis
The producer of financial reports is typically an accountant by background. They should be in the best position to analyse and understand the financial reports. They should be able to identify the key issues, find causes, prioritise points to be considered and add expert advice to the reports. But in SMEs this is rarely done before the circulation and presentation of the reports; time pressure is given as the main reason.
5. Presentation
The financial section of most SME board meetings usually consists of the FD/CFO talking though the tabular financial reports. Then there are questions and discussions. But a high quality presentation would get across the information in a more engaging, effective way. It doesn’t have to be a specially prepared PowerPoint, but it should present the financial reports and the key points in them, in a logical, prioritised order with appropriate visuals and text.
If you’ve gone through the extended training of an accountant and are often working with accounts then you can learn how to overcome most of these challenges. Though I suspect that even finance professionals don’t see all the subtle patterns in numerical, tabular reports.
But most of us haven’t been financially trained. For us, those 5 areas of challenge come together in financial reports, leaving critical information hidden in an impenetrable fog.
Our ambition at Numerable Software is to find solutions for each challenge and make them available in our web app. We haven’t got all the way yet, but we are making progress. See what you think by giving it a try at http://3.11.106.112/.