7 minute read
TECHNOLOGY
Just think how much things have changed over the past 10 years in the way we communicate with one another and share information. Everything is instant (think text messaging), everything is more visual (think Snapchat and Tik Tok), and everything is By John Higgins, more mobile (think smartphones
CPA.CITP and tablets). It all started with social interactions but has rapidly extended to business information sharing. As professionals, we must ask ourselves, “Are we adapting our reporting model to keep pace?” The answer, I believe, is “sort of.” The good news is that an abundance of new-generation tools is available to us to develop reporting systems that are timelier, more relevant and more easily understood than ever before. The bad news is that only a fraction of CPAs have taken steps to embrace the key performance indicators (KPI) dashboard and the opportunity that it provides for us to do a better job of informing our clients, business owners, management teams and others. This article will provide you with some insight and motivation for embracing this new reporting model.
History of financial reporting
In order to understand where we are now with our reporting model, let us take a quick tour of the history of financial reporting over the past 30 years. When I entered the accounting profession in the early 1980s, everything was mainly paper-based with pegboards, general ledger binders and typewritten financial statements. This seems archaic by today’s standards. Things began to change with the introduction of the personal computer. Financial reporting became more automated with PC-based accounting software, spreadsheet tools and word processors. That was a big step, and often a painful one, as we started with very primitive software solutions and finally reached a point of maturity with an array of quality accounting systems and Excel as our power tools. The fact is, however, that even though we have improved how we go about providing financial reports, we really have not changed what we are reporting to any significant degree. Most financial reporting today is still based on the traditional profit and loss and balance sheet reports that are backward looking by their very nature. We have also made incremental improvements in cash-flow projections, budgets and graphical reporting. All in all, the changes over the last couple of decades have resulted in a much better model for providing financial reports.
KPI dashboards — the new financial reporting paradigm
We are entering a new era with a new financial reporting paradigm that significantly changes what we are reporting. The emerging trend is to provide our constituents with meaningful financial management information in the form of digital dashboards. What is happening in the financial reporting market now is a fast-paced trend to provide key financial performance indicators in real time and in a simple and intuitive format. Think about any of your users of financial information: clients, management, business owners, stakeholders and so forth. What is it that they are most inquisitive about when it comes to financial information? Usually, they want to know things about cash flow, revenue performance, gross profit, inventory turns, profitability — all performance-based information. So often we must take the historical financial statements and provide further analysis for our users to give them the information they are looking for. That is a significant aspect of the CPA’s value proposition. The opportunity in front of us is awesome. With the innovative technology available in financial reporting — primarily because of cloud-based computing — we can automate the KPI analysis process to the point where it is provided to our constituents in real time and in a format that is easily understood and very graphical and explorable. Frankly, the cloud has been the primary catalyst in the increased deployment of digital KPI dashboards, and for two reasons. One is that the very nature of cloud computing means we can have information delivered instantly to virtually any device. Second, now that the cloud infrastructure has been established, we are seeing a whole new generation of software development that embraces all the benefits of the cloud. Just the simple fact that software can be developed to run through an internet browser and nothing else is huge. We take it for granted now, but think about the early days of spreadsheet software. If you generated a spreadsheet full of ratio analysis and wanted to share it with your clients, you had to print it to paper and send it. You could not assume that they had a spreadsheet program to view it in. That, of course, is not an issue today. But my point is that today virtually everyone has a PC, laptop, tablet and/or smartphone with a browser and internet connectivity. So, we can deliver KPI dashboards to them anytime, anywhere and on any device.
Your role
You are likely thinking, “This is all interesting and conceptual, but how do I embrace it?” The good news is that you already have obtained 90% of what you need: your knowledge and experience as a CPA and a provider of financial information. The remaining 10% involves learning more about the tools that are out there today to help you build KPI dashboards and, more importantly, to find out from the users of your services what KPI information is most valuable to them. Let’s start with the latter. When it comes to the most relevant KPIs, it is fundamental: cash, A/R aging, A/P aging, prior-period and prior-year comparisons, budget vs. actual variances, revenue trends, profitability trends …. the list goes on and on. The beauty of the situation is that you can use this opportunity to serve your constituents as a valued business advisor by helping them understand what KPI information should be important to them and then helping them analyze the financial performance of their organizations on an ongoing basis. I was recently talking with the managing partner of a CPA firm that specializes in virtual CFO services. Their business model is focused on weekly one-hour meetings via the web Zoom. For that hour, they are simply reviewing the KPI dashboard with the client and making decisions based on the information. This is done in a value-pricing fee model in which they establish a monthly fee based on the value to the client. The back-office side of it is all completely automated, so the actual effort required by the CPAs is limited to spending the time to study the KPIs prior to the online coaching meeting with the client. By the way, the CPA told me he has seen many of his clients only via the web and never in person — even the local ones. Clients these days do not want to take the extra time out of their day for an in-person meeting. That is the beauty of all the tools that cloud computing brings to us. I recommend that you do a little research on cloud-based accounting systems like QuickBooks Online, Xero, Sage Intacct, NetSuite and others. These are all top-selling solutions that fully embrace the KPI dashboard model. Having this functionality built right into the system makes it about as simple as it gets. In fact, the risk we face as a profession is that the software developers are providing this information without our involvement. Therefore, we need to step it up and take an active role because, at the end of the day, no matter how simple or graphical the information is, the clients need our assistance to interpret and translate for them what the information truly means in terms of business performance. One of the most basic tools you can use for KPI dashboards is Excel. With the charting capabilities of Excel and the more powerful Power BI apps from Microsoft, you can create interactive dashboards that can be delivered through the web in real time. This approach will require more effort to get them set up, but it is a tool that is ubiquitous. There are also dedicated cloud-based KPI dashboard applications that can be used independent of your accounting and ERP systems. I hope this provides you with a better understanding of the KPI dashboard concept and the opportunity it provides for you to add more value for your clients. I believe that the more you learn about this new paradigm, the more excited you will become about embracing it — because it provides a rare opportunity for us to be more creative as a profession.
John H. Higgins, CPA.CITP is a strategic technology advisor and co-founder of CPA Crossings LLC.
