The monthly financial review process helps the senior management team better manage the finances of the company while providing checks and balances that help to alert them when the company has deviated from its original "game plan."
The most important aspect of the process, however, is that it creates an on-going, disciplined approach for reviewing the financial results that operational activities have produced.
Typical participants in the review meeting are the president/COO, CFO or controller, and each department head.
The monthly financial review process will help accomplish the following:
— Ensure performance reporting occurs according to each department within the organization;
— Focus discussions and actions on the key performance areas that are critical to ensuring the achievement of the desired financial results;
— Identify successes by department (meeting or exceeding the financial plan/budget);
— Identify performance shortfalls by department (negative variances as compared with the financial plan/budget);
— Develop action plans to perpetuate successes and/or correct performance shortfalls.

Several years ago, I had a client in Florida that was in financial trouble. The company had five sources of revenue that were accurately reflected on its profit-and-loss statement.
However, all of the expenses for the organization were accounted for in one catch-all expense bucket on the P&L.
The organization’s managers had no idea what the company’s gross profit was according to each specific revenue category. They had no idea where they were making money or where they were losing money.
Unfortunately, that scenario is not all that uncommon within small to midsize companies; it’s a bit surprising to see how many organizations function with poorly structured P&L statements.
A properly structured profit-and-loss statement is an invaluable management tool and is a critical part of the monthly financial review process.
Another component of the monthly financial review process is the monthly financial review meeting. The primary purpose of such a meeting is to focus the management team on the organization’s financial performance (earnings and cash flow).
The monthly financial review meeting is an interactive process that will improve the team’s understanding of how day-to-day activities positively or negatively affect the financial performance of the organization.
The process will also heighten the team’s awareness with regards to company, department and individual successes, failures, opportunities and obstacles. This is a relatively easy process to perfect within an organization. However, it requires a willing leadership team that is not afraid to acknowledge and accept responsibility for negative financial outcomes within their area of responsibility.
Within the monthly financial review meeting, a common mistake made by many company owners and CFOs is to present the financial performance of the organization to all the department heads, as opposed to allowing each department head to present his or her own department’s performance relative to the plan.
That’s a subtlety that is often overlooked. That little change in process will have a huge impact upon an owner’s ability to hold managers accountable for their financial performance.
The owner or CFO who presents the organization’s financial performance to the management team essentially disables his or her ability to hold the management team accountable.
There’s great value in having department heads in front of their peers each month presenting how their respective departments performed. That level of performance awareness improves accountability and leads to improved execution. Heightened performance awareness stimulates the right kind of dialog within companies. Areas where underperformance exists are instantly exposed, providing opportunity for performance improvement.
The goal of monthly financial review process implementation is to be able to view financial performance in a manner that will provide the management team with the appropriate insights, providing the opportunity to make course corrections and changes to the operating plan as needed.
Management teams achieve that goal by developing the correct financial reporting tools and disciplines. Having the correct tools and disciplines in place makes it easier to catch and correct a problem before it becomes a fatal flaw.

Keys to success when participating in the monthly financial review process include:
1) Make sure your P&L is structured properly, ensuring it tells the truth about where the company is making and losing money;
2) Use a variance report format when reviewing the financial performance of the organization;
3) Distribute the variance report several days prior to the monthly financial review meeting, providing the management team with the opportunity to thoroughly review the report prior to the meeting;
4) Ask each meeting participant to review and identify all negative variances prior to attending the monthly financial review meeting;
5) Each meeting participant must be prepared to answer the four accountability questions for any negative variance within their areas of responsibility.

The accountability questions are:
1) What happened that caused the negative performance variance?
2) Why did it happen?
3) What’s currently being done (present tense) to correct the negative performance variance?
4) How long will it take to correct the negative performance variance from a year-to-date perspective?

Philip Mydlach
is the owner of Mydlach Management Advisors,
a corporate planning
and performance improvement assistance company in New Berlin. He can be reached at 262-785-5552 or

April 2, 2004 Small Business Times, Milwaukee

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