Revenue is ahead of budget. Profit has improved. The balance sheet looks stronger.
Yet customers are taking longer to pay, the next shipment will cost more, and a large loan repayment falls due in three months.
A board pack can report good results while leaving directors unaware of the pressure building inside the business. When economic conditions change, management must show how those changes affect the company’s cash, commitments and plans.
Begin with the decisions
Many board packs open with pages of financial results. Directors must work through the detail before discovering what management needs them to approve.
A more useful opening is a short decision summary. For each significant matter, state:
- What has changed.
- How it affects the business.
- What management recommends.
- What approval is required.
- When the decision must be made.
Decision required: Defer the second phase of the warehouse expansion by three months. Customer collections have slowed, and proceeding as scheduled would reduce projected cash below the agreed operating minimum.
That gives directors a clear issue to assess. The supporting numbers should follow. The pack should also distinguish matters requiring approval from matters presented for discussion or information.
Translate economic developments into company exposure
An exchange rate movement, interest rate change or increase in energy costs matters differently to each company. The report should make that connection explicit.
A general statement such as “currency volatility remains a risk” gives directors little to work with.
A more useful statement would explain that the company has $500,000 of supplier payments due within 90 days. At a hypothetical exchange rate of ₦1,500 to the dollar, these require ₦750 million. At ₦1,800, they require ₦900 million. Management must therefore assess how to fund or protect the additional ₦150 million exposure.
The figures are illustrative. The reporting principle is simple. Show the exposure in terms the board can act on.
| External change | What the board pack should show |
|---|---|
| Exchange rate movement | Foreign currency payments due, protection in place and additional cash required under alternative rates. |
| Interest rate change | Which facilities can reprice, when the effect begins and the estimated saving or extra cost. |
| Higher energy costs | Effect on margins, ability to recover costs through pricing and proposed operating response. |
| Weaker customer demand | Sales volumes, discounts, product mix, collections and inventory exposure. |
| Supply disruption | Stock cover, alternative suppliers, delivery delays and possible lost sales. |
Explain the quality of revenue and profit
Higher revenue does not always mean the business is becoming stronger. It may reflect price increases while sales volumes decline. Profit may improve because of a one time gain. A large sale may remain unpaid long after it was recorded.
For revenue, separate the effect of price, volume and product mix. Identify major customer concentration and show whether collections are keeping pace with sales.
For profit, explain significant one time items and changes in underlying operating margins.
Suppose revenue increases by 15%, but units sold fall by 8%. Directors need to understand whether customers are resisting prices, whether the business is losing market share and whether the change was expected.
A favorable total can conceal an unfavorable trend.
Give cash its own clear story
Show how much cash is available for use, what is restricted and which major payments are approaching. Explain why cash changed during the period.
Directors should be able to follow the movement from operating profit to cash generation, including money tied up in receivables and inventory, payments to suppliers, tax, capital expenditure and debt service.
The forecast should answer three questions:
- When is cash expected to be lowest?
- Is that balance sufficient to keep the business operating?
- What must happen to maintain it?
A healthy December balance can hide a funding gap earlier in the year. Where cash is tight, a rolling 13 week forecast can give management and directors a clearer view of approaching pressure.
Show debt obligations and room to absorb pressure
A single total for borrowings is insufficient. The board needs a clear view of repayment dates, borrowing currencies, interest terms, security and significant loan conditions.
It should also see covenant headroom. This shows how far the company remains from breaching each applicable condition, calculated using the definitions in its agreements.
A company may remain compliant today but approach a limit if earnings fall or collections slow. The report should show that possibility early, explain its consequences and identify the response.
Update the outlook when assumptions change
The original budget remains useful as a record of what the company planned. Directors also need management’s current assessment of what is likely to happen.
A practical report compares:
- Actual performance against budget.
- The latest forecast against the original plan.
- The latest forecast against the previous forecast.
Explain material changes in sales volumes, pricing, exchange rates, energy costs and collection periods. Then show a credible downside case and the action management would take.
Present options with the recommendation
Where approval is required, directors should see the available choices.
| Option | Potential benefit | Financial consequence |
|---|---|---|
| Proceed as planned | Capacity becomes available sooner. | Cash is committed earlier and borrowing may increase. |
| Phase the investment | Spending follows progress and demand. | Some capacity becomes available later. |
| Defer the investment | Liquidity is preserved. | The company may lose sales or face higher future costs. |
Management should explain why its preferred option offers the best balance. It should also make the cost of delay visible.
Close the loop on previous decisions
Board decisions should remain visible until management has completed them. Include a short action tracker showing the decision, responsible executive, deadline and current status.
Where progress has stalled, explain why and whether further board action is needed. This helps directors assess execution and prevents the same issue from returning without a clear account of what management has done.
Make the report easier to use
More pages do not necessarily produce better oversight. Keep detailed schedules available, but make the main report clear enough for directors to identify the matters that deserve discussion.
A useful structure is:
- Decisions and significant developments.
- Performance and its main drivers.
- Cash, working capital and near term obligations.
- Debt, covenants and major exposures.
- Updated forecast, scenarios and management responses.
- Progress on previous board actions.
When the economy changes, your board pack should show what changes for the business and what the board needs to do about it.