Prepare and provide financial and business performance advice to internal stakeholders

Giving good advice requires you to turn knowledge into understanding. Many executives already make decisions that may have negative consequences as a result of their unconscious tendency to skim or filter the things they hear or read. Regrettably, many in business do not always understand, or appreciate the full gravity of the information that is presented to them.

The vast rafts of reading material and conflicting news and opinion required to lead an organisation can often lead to information overload. No wonder many business leaders with big demands on their time struggle to make it through the volume of briefing papers and emails they receive.

Detailed, succinct, and regular reporting of financial information to all the internal stakeholders of your client businesses is a vital, but frequently overlooked component of long-term business success. These internal stakeholders may include the management team and the board of directors.

Before putting together a carefully considered plan for a business and communicating that information with internal stakeholders, a few vital matters should be considered:

• Not only do you need to advise and report on such things as income and expenses that can be interpreted from income statements, but you will also need to report on the information that the specific  set of stakeholders need to make decisions. For example, balance sheet statements and cash flow statements can provide you with information on how the business is allocating cash and the use of any debt.
• Ideally, the business should take advantage of some kind of stakeholder dashboard that summarizes all these key internal and external metrics in one place. It must also include metrics and key performance indicators (KPIs) that are unique to its effort. If the organisation you're working with doesn't have such a dashboard, your reccomendations may include establishing such a dashboard and presenting information in such a fashion to demonstrate it's advantages.
• The owners of each metric should be invited to explain items under examination, so other internal stakeholders can appreciate the results recorded and understand what they mean. Has inventory grown because of a new product line? Has revenue risen due to the company deciding to use a line of credit? Is staff percentage lower because the company is hiring in anticipation of revenue growth?
• Financial reports and information should never be taken out of context; rather, they should be compared to prior periods in order to observe how external factors alter outcomes.
• A structured and understandable communication method that utilizes pictures and graphs instead of numbers in a list could provide valuable information to leaders, allowing them to visualize industry trends to better project meeting productivity and improve performance with board members (even internally or externally). 

Further Reading   

The Elements of Good Judgment 2020, Harvard Business Review, viewed 7 October 2022.

Risk Management   

Risk management plays an important part in contingency planning and involves implementing contingency plans to mitigate or minimise the likelihood and consequences of loss. 

The factors that may influence the implementation of contingency plans include:

• A rapidly changing environment
• A highly competitive environment
• The management of a disastrous event
• New and untried technology for production or service delivery.

The process of planning and implementation of risk management and contingencies ultimately rests with the top management of the organisation, but other levels of staff should be involved. ¹

Risk identification is the first step in the process of risk management. Some key areas that may be exposed to risk are:

• Financial – a reduction in sales, high operating costs
• Human resource management – a turnover of staff
• Information technology – computer hacking or fraud
• Environmental – weather conditions
• Seasonal factors – a downturn in sales in certain times of the year
• Fraud – theft by employees.
• Changes in market trends

Significant risks are separated from those with low priority so that more resources can be diverted towards the significant risks. 

Various options for treating risk are evaluated, and the best response is selected. 

The options to treat the risk could include:

• Avoid – do not proceed with the activity for which the risk is identified.
• Accept – accepting the risks at the cost of taking any other action might outweigh the potential of benefit for the activity.
• Control – the risk is controlled by reducing the likelihood of a risk occurring and mitigating the consequences of the risk.

Communication and consultation with the client is a key component of the risk management process, and it may be necessary to seek assistance from experts or consultants, depending on the circumstances.

Further Reading   

Business.gov.au has some useful Risk Management Resources:

Maintaining Adequate Insurance   

As part of the contingency planning advice which needs to be discussed with the client, it is important to address any necessary insurances to protect the business.

Insurance is a resource that bears the risk of the type of loss for which the business has been insured for. 

Public liability is one of the most important forms of insurance that a business can have. This form of insurance can protect the business against property damage and personal injury. Insurance values should be checked to ensure the correct amounts are paid or received by the due dates and recorded accurately. Any delay in payments will increase the risk of the insured items or events.

Action Plans for Contingency   

A contingency plan is an action which will be taken if an identified risk event occurs. 

When developing contingency action plans for a business, they can be developed under the following areas:

Revenue   

The revenue of an organisation deals with income from the sale of goods and services and investment income. A decrease in sales income can result from a variety of circumstances, such as a downturn in the economy, competitors’ sale policies, government legislation and policies, and a shortage of materials.

When a downturn in income occurs, contingencies to respond to the downturn could include reduction of costs or undertaking an aggressive marketing and advertising campaign such as:

• Television and radio advertisements
• Using billboards
• Offering gifts and prizes
• Introducing new products.

Most organisations will work to increase or maintain their sales by increasing their market share. Often as part of the contingency plan, there is a need for diversification of products or services to maintain profits and financial viability. 

Cost of Goods Sold (COGS)   

To assist with maintaining the financial viability of the business, the COGS can be decreased or increased or maintained an appropriate level in line with revenue. 

The COGS can be reduced by decreasing:

• The purchases of goods sold
• The purchase of raw materials
• Staff numbers
• Inventory on hand.

If there is an increase in the COGS, it may be necessary to:

• Shop around for the best supplier
• Purchase cheaper products and raw materials
• Recycle and reuse consumables as applicable
• Implement a just in time method to reduce inventory
• Hire a highly skilled labour force
• Implement more efficient machinery
• Outsource processes
• Compare the production process to a benchmark or best practice method to identify alternative solutions for production or provision of services.

An overall increase in COGS is expected to be accompanied by an increase in revenue.

Expenses   

The expense budget consists of administration, selling, distribution and financial expenses. The expenses are not related directly to production but to other operations of the organisation. 

The following sets out some basic measure which can be taken to reduce costs:

• Turn off lights, equipment and air-conditioning systems when not required
• Purchase recyclable materials
• Reduce bad debts by enforcing a strict policy of credit rating
• Share resources with other organisations where applicable
• Purchase materials in bulk
• Reduce the use of ordinary mail by using electronic services.

Where actual costs are lower than the planned cost, the situation is considered favourable otherwise it will be negative and unfavourable. Any increase due to an increase in the level of activity should be identified.

Cash Flow    

The cash flow consists of cash inflows from income and cash outflows for expenses incurred. The cash flow identifies the excess and shortfalls in cash at any time. The surplus is invested to earn income, and the shortfall is covered through borrowings or injecting capital. 

If there is a cash flow issue the following could be implemented:

• Borrowings should be appropriate and timely to minimise any interest (e.g. It is cheaper to get a business loan than to use an overdraft facility).
• Excess capital assets should be sold and leased back to cover shortfalls in cash. A building can be sold and leased back, and the case used to overcome the contingent situation.
• Shortfalls resulting from an expansion of operations or an unexpected increase in sales or market share capital can be increased by issuing extra shares or by borrowing money through debentures.
• Shortfalls can be reduced by shortening the collection period for accounts receivable and by lowering the cash outflow period by extending the payment period to creditors.
• Planned expenditure on capital should be postponed.
• Capital expenditure on required equipment could be reduced by either renting or hiring the equipment.

Choosing the Appropriate Contingency Plan   

When selecting the most appropriate contingency plan, there are key considerations which need to be addressed including:

• The organisation’s history
• Staff experience
• Recommendations by the staff
• The history of other organisations in the same industry
• Expert advice.

Where an unfavourable deviation is identified by variance analysis, a contingency plan is determined by the person responsible or by higher authority. Implementing, monitoring and modifying contingency plans are required to maintain the financial objectives of the organisation. ¹

Succession Planning   

Succession planning is another aspect of contingency planning. If the organisation is small, there should be plans in place for who will take up ownership or the process of selling the business. Owner/managers should decide in advance and establish the necessary plans for the transition.

The second form of succession planning is where specialised skills lie with key personnel who are not the owners of the organisation. 

There is a risk key personnel may decide to leave an organisation at relatively short notice, and this departure can cause disturbance to the operations of the organisation. To alleviate the problem organisations can take out insurance cover for their key personnel in the event of sickness or death.

Further Reading   

Business.gov.au has some helpful resources for Succession Planning

Many of your clients will have businesses with complex structures and operations, and will have complex tax issues, that can become even more complicated their businesses grow and change. This can be a major problem for your clients, as it can put them at a competitive disadvantage and make it difficult to maintain profitability.

A complex tax issue is something that might have positive or negative implication for the client and needs to be further analysed. The issue may relate to opportunities that can be taken advantage of or penalties that need to be avoided. The issue maybe specifically tax related or connect to ethics, governance, or other personal matters. Businesses can face more complex taxation issues when they expand. 

Examples of the most common sources of complex taxation issues include:   

The best way to deal with complex business taxation issues is to prevent them from occurring in the first place. This can be done by carefully planning your clients business operations and ensuring that their tax situation is as simple as possible.

It is important to identify and discuss any issues you identify with your client and seek clarification and further details so you can conduct through research and/or refer the issue to a designated authority.

To resolve the identified tax issue/(s), you may need to contact a designated authority like the Australian Taxation Office (ATO), seek independent legal advice from a tax lawyer or seek assistance from a peer or supervisor who has specialised skills and experience in the area you have identified.

Further Reading   

Read the following article from the Tax Institute lecturer and Tax Partner at Johnson Winter & Slattery Andy Milidoni for more on solving complex client problems and providing first-class client advice.

Five steps to solving complex client problems 2022, The Tax Institute, viewed 5 October 2022.

ATO advice and guidance

The ATO can help you understand how the law applies to your cleints. This includes public and private advice.

Ensure that you cheque with the ATO before seeking advice from external consultants.

Note: Bookmark ATO web pages as they regularly update the information on their portal.

Tax agents can contact the ATO using the following guide.

Tax agents can also use the ATO’s Tax Agent Online Services Guide 

This guide will help you determine the best way to frame your query or complete transaction online. Bookmark the page as the ATO regularly updates the information on their portal.

Providing Advice in a Written Format   

Business documents and advice should be presented professionally using an appropriate layout which includes, headings, subheadings, diagrams, graphs and charts. Documents should also be formatted in accordance with any statutory or organisational requirements.

When providing advice to clients, the following style should be implemented:

• A plain English writing style
• Language appropriate for the intended audience
• Clear, concise words to enhance readability
• A courteous, confident and assertive tone
• Information that flows logically

A plain English writing style ensures that the reader can understand the business information and ideas. The language used should be appropriate for the intended audience. Written communication can include letters, emails, faxes, memorandums, and short or long reports. 6  (Dwyer J, 2009 p.480).

There are a number of methods which can be used to present financial and business performance information to a client. The method of presentation will be very closely linked to the objectives of the specific client.

The following methods may need to be incorporated when presenting information: 

• Details of calculations should be provided as part of the analysis delivered to a client. Depending on the document being prepared, and the complexity of the calculations, it may be appropriate for these to be contained in an appendix.  The client needs to be able to see enough information to determine whether the correct assumptions have been made.
• Estimates and projections (including the assumptions) used in the preparation of the projections. For example, the interest rate or exchange rate assumptions which were used? This enables the client to make judgements based on assumptions enables them to determine the impact of any changes to these assumptions.
• Graphics can be used to explain financial information.  The most common methods of presenting financial information graphically are line charts (to show trends over time), bar charts (for comparisons) or pie charts (for showing relative comparisons).
• Tables are also useful when providing a significant amount of data in a comprehensive format. The information is presented in a way that the client does not need to search through the advice for individual sources of data.
• Explanatory notes can also be used in presenting financial and business performance information where assumptions have been made that are relevant to the advice, but not part of the advice itself.

There are accounting standards that prescribe how financial data should be formatted. These are AASB 101 Presentation of Financial Statements and IAS 1 Presentation of Financial Statements.

AASB 101 Presentation of Financial Statements   

AASB 101 prescribes the format for the following financial statements:

Statement of financial position

The statement of financial position shall include line items that present the following amounts:

• Property, plant, and equipment
• Investment property
• Intangible assets
• Financial assets (excluding amounts shown under (e), (h) and (i))
• Investments accounted for using the equity method
• Biological assets within the scope of AASB 141 Agriculture
• Inventories
• Trade and other receivables
• Cash and cash equivalents
• The total of assets classified as held for sale and assets included in disposal groups classified as held for sale in accordance with AASB 5 Non-current Assets Held for Sale and Discontinued Operations
• Trade and other payables
• Provisions
• Financial liabilities (excluding amounts shown under (k) and (l))
• Liabilities and assets for current tax, as defined in AASB 112 Income Taxes
• Deferred tax liabilities and deferred tax assets, as defined in AASB 112
• Liabilities included in disposal groups classified as held for sale in accordance with AASB 5
• Non-controlling interests, presented within equity
• Issued capital and reserves attributable to owners of the parent

55 An entity shall present additional line items (including by disaggregating the line items listed in paragraph 54), headings and subtotals in the statement of financial position when such presentation is relevant to an understanding of the entity’s financial position.

56 When an entity presents current and non-current assets, and current and non-current liabilities, as separate classifications in its statement of financial position, it shall not classify deferred tax assets (liabilities) as current assets (liabilities).

Statement of profit or loss and other comprehensive income

81A The statement of profit or loss and other comprehensive income (statement of comprehensive income) shall present, in addition to the profit or loss and other comprehensive income sections: 

• Profit or loss
• Total other comprehensive income
• Comprehensive income for the period, being the total of profit or loss and other comprehensive income

If an entity presents a separate statement of profit or loss, it does not present the profit or loss section in the statement presenting comprehensive income.

81B An entity shall present the following items, in addition to the profit or loss and other comprehensive income sections, as allocation of profit or loss and other comprehensive income for the period:

• Profit or loss for the period attributable to:
  • Non-controlling interests, and
  • owners of the parent.
• Comprehensive income for the period attributable to:
  • Non-controlling interests, and
  • owners of the parent.

If an entity presents profit or loss in a separate statement, it shall present (a) in that statement.

IAS 1 Presentation of Financial Statements    

IAS 1 prescribes the format for the following financial statements:

Statement of changes in equity

Information to be presented in the statement of changes in equity:

• Total comprehensive income for the period, showing separately the total amounts attributable to owners of the parent and to non-controlling interests
• For each component of equity, the effects of retrospective application or retrospective restatement recognised in accordance with IAS 8
• For each component of equity, a reconciliation between the carrying amount at the beginning and the end of the period, separately disclosing changes resulting from:
  • Profit or loss
  • Other comprehensive income
  • Transactions with owners in their capacity as owners, showing separately contributions by and distributions to owners and changes in ownership interests in subsidiaries that do not result in a loss of control

Information to be presented either in the statement of changes in equity or in the notes:

• For each component of equity, an analysis of other comprehensive income by item
• The amounts of dividends recognised as distribution to owners during the period, and the related amount of dividends per share.

Statement of cash flows   

Note Disclosures    

The following should be included in the notes to the financial statements: 

1. Information about the basis of preparation of the financial statements (e.g. going concern or in liquidation) and the specific accounting policies used 
2. Information required by International Financial Reporting Standards or that is relevant to understanding the statements that are not presented elsewhere in the financial report 
3. Significant accounting policies, including measurement bases and relevant policies to understanding the financial report 
4. The judgements, apart from those involving estimations, that management has made in the process of applying the entity’s accounting policies and that have the most significant effect on the amounts recognised in the financial statements 
5. Key assumptions concerning the future and other key sources of measurement uncertainty that have a significant risk of causing material adjustments to the carrying amounts of assets and liabilities in the next twelve months 
6. Information that enables users of its financial statements to evaluate the entity’s objectives, policies and processes for managing capital

Key components of a recommendations report   

Communicating your recommendations to key stakeholders is crucial to gaining approval for any opportunities for improvement that may be identified. 

A well-designed report that analyses the results of your review, giving recommendations based on that analysis, will support the success of future projects.

Reports can be filled with detailed statistical data. However, without careful explanation, your core findings from this data may be lost on many readers. Therefore, it will pay to present it in a table or graphical format if you have quantitative or numerical data.

You may not need to submit a formally structured Business Report in every case in your organisation; sometimes, it may be enough to include a brief outline and summary of your results. First, however, you must review and understand the basics of professional communication. 

The critical successful report writing is planning, so before writing the report, consider the following points.

Identify your target audience

Understanding who you are writing for will shape the content and form of the report. Think about the stakeholders in the organisation; this report is your opportunity to demonstrate your skills as a professional, adding value to your personal "branding" while helping the organisation achieve its goals and objectives.

Every effective professional is protective of their time. Think about what information the audience needs to know and how long it will take them to read your report. Making it concise so that time-poor people can easily digest it. Ask yourself:

• Who will read my report?
• What are they looking for?
• What do they need to do as a consequence of reading my report?

Identify the Scope, size and deadline

Establish clear aims and objectives that specify the report's purpose and show your reader what you aim to do. A report is an organised form of writing designed to present information in a form that can be read quickly and accurately. 

However, it is vital to understand that the sections of a report might not be read consecutively. For example, your readers may read the introduction and the conclusion and then return and read the body of the message and your supporting data and information.

Sample Report structure

A typical report structure used in the corporate sector Includes: