Financial reporting provides critical business intelligence that helps companies drive investment, secure credit, maintain compliance, and more. While the financial reporting process can be complex, leading companies still find ways to make the process seamless and cost-effective. APQC has found that some companies can carry out reporting at less than one-fifth of the cost of some of their peers and competitors. After breaking down cross-industry data on the costs of reporting, we’ll review the strategies that these top performers use to keep their costs lower.
The cost of financial reporting includes the costs involved with preparing balance sheets, income statements, cash flow statements, and statements of shareholders’ equity. The total cost is the sum of any outsourced, overhead, personnel, and system costs associated with the process. Calculating the measure per $1,000 revenue allows an organization to benchmark itself against peers and competitors of different sizes.
We have found that there is a clear sense of top and bottom performance for this measure. Top performers (organizations at the 25th percentile) spend only $0.19 or less per $1,000 of revenue on financial reporting, while organizations at the median spend more than twice that amount at $0.40. Bottom performers (organizations at the 75th percentile) spend a dollar or more for every $1,000 of revenue — more than five times what top performers spend.
The wide gap between top and bottom performers means that many organizations have an opportunity to achieve significant savings when it comes to financial reporting. For example, an organization with $1 billion in annual revenue could potentially save up to $600,000 by moving from the 75th percentile to the median range of performance.
Optimizing the Cost of Financial Reporting
There are at least three strategies you can follow to keep costs lower for financial reporting.
1. Reduce Manual Steps in the Process
Labor is one of the biggest drivers of cost for any process, and financial reporting is no exception. Higher labor costs for this process are often a product of the hours that reporting teams spend manually pulling, cleaning, and manipulating financial data between disconnected systems.
In addition to increasing the risk of errors and the need for rework, highly manual processes simply take longer — which means the labor costs associated with the process will be higher. Work to automate and integrate your systems as much as possible to reduce manual touchpoints in the process.
2. Train Your People
The reporting process has a lot of moving parts — especially in large and globally distributed organizations. Each team involved with the process needs to have a clear understanding of where to pull the data used for reporting (and from which systems), where to send it, when it is due, how it needs to be formatted, and so on. Standardize the process as much as you can and create resources like checklists that outline the relevant steps as clearly as possible. Process documentation and training guides help to minimize the amount of time that staff spend guessing about what they’re supposed to do and help to reduce the need for rework, both of which will help to keep costs lower.
3. Know Your Audience
Typical stakeholders for reporting include a diverse range of stakeholders: Board members, employees, investors, creditors, the public, and the U.S. Federal Government among others. The length and content of your reporting are going to vary based on which of these stakeholders you address.
To avoid the need for rework, extended explanations, or penalties for being out of compliance, make sure your team knows exactly what needs to be delivered to each reporting audience. Some requirements, like those for the U.S. Securities and Exchange Commission, are highly formalized and relatively easy to find. Reporting requirements for your board might feel more nebulous and take time to draw out through a series of conversations. Build good working relationships across the enterprise, take the time to learn what each audience needs, and tailor your reporting accordingly.
Financial reporting provides critical business intelligence for a wide range of different stakeholders. However, the importance and complexity of financial reporting do not prevent you from crafting a cost-effective reporting process. Leading organizations keep costs lower by working to reduce manual steps in the process, ensuring that each member of the team knows how to carry out their role in reporting, and learning the unique reporting requirements of different audiences.
Perry D. Wiggins, CPA, is CFO, secretary, and treasurer for APQC, a nonprofit benchmarking and best practices research organization based in Houston, Texas.