- The Bottleneck
- ⚙️ The Ops Playbook #7
⚙️ The Ops Playbook #7
Internal vs. External Reporting
Read Time: 3.8 Minutes
Good Morning Operators ⚙️
We’ve all heard of startups committing fraud.
Do you know of the African founder who “mysteriously” misplaced $25 million?
Scroll down to the Brain Teaser section to learn more!
Remember Alameda Research's confession about juggling multiple sets of balance sheets?
That episode teaches the risks of maintaining separate financial reports for internal and external audiences.
Dual bookkeeping is far from the gold standard.
Yet, the dilemma persists.
COOs often find themselves walking a tightrope. They need to manage disparate financial statements for different stakeholders.
Let's unpack this precarious balancing act: why it's a big deal and how you can navigate it without a free fall.
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The Big Idea
The What: A TLDR of the idea
Internal vs. External Financial Reporting
When your balance sheet becomes a hot topic in stakeholder conversations, those figures aren't mere numbers.
They're ethical tokens in a high-stakes gamble on integrity and strategy.
The gap between internal and external reporting can be a ticking time bomb—a tool that can propel and cripple your strategic goals.
The Why: 3 reasons why you should care
1. Conflicting Objectives 👊 →
Your team craves granular operational data to make informed decisions. Investors and regulators are after compliance and growth metrics.
These two groups can clash, resulting in a precarious juggling act even for veteran COOs.
Take Alameda's case—it's a stark lesson in how operational necessities and external expectations can escalate into full-blown crises.
2. Ethical Quandaries 🔫 →
It's not about what you can disclose but what you should.
Striking a balance between two accurate yet divergent sets of financial records can weave a misleading narrative.
The temptation to 'adjust' external records to appease stakeholders can spiral into ethical dilemmas, each with its cascading set of challenges.
3. Communication Breakdown 🦜 →
Navigating two financial languages can lead to serious translation errors.
These missteps can trigger a chain of poor investments, misguided business strategies and even catch the eye of regulatory watchdogs.
The leak of Alameda's lender-specific balance sheet reveals how brittle communication can be between internal and external reports and how quickly things can disintegrate.
The How: 3 ways to handle this
1. Alignment Overhaul 😍 →
The goal is to align metrics and KPIs that can serve multiple audiences.
This isn't number-crunching. It's about understanding how different stakeholders use these metrics.
GIF by originals on Giphy
Tableau, Microsoft Power BI, or even custom-built solutions are tools you should explore. These tools allow dashboard customization to switch between internal and external reporting.
Phase 1 Groundwork: Bring together a cross-departmental team to identify and agree upon the key metrics and KPIs. This is an ideation phase; don't rush it.
Phase 2 Implementation: Once you have a broad agreement on metrics, involve the finance and analytics departments to create visually appealing yet data-rich templates.
Phase 3 Integration: The last step is operationalizing these KPIs. Conduct training sessions and workshops to integrate these aligned metrics into routine decision-making workflows.
To learn more, click here
2. Establish Ethical Guidelines 🧭 →
Solid governance isn't a buzzword.
Solid governance ensures everyone is on the same page about ethical reporting practices. The whole system is designed to discourage unethical alterations of financial data.
Gif by drawify on Giphy
Phase 1 Committee Formation: Assemble an ethics committee comprising legal experts, senior financial analysts, and operational heads. Their role? To act as the moral compass of the company.
Phase 2 Documentation: Develop a detailed policy document, but don't make it a tombstone text nobody reads. Include case studies, examples, and potential scenarios to make it relatable and easily understood.
Phase 3 Internal Marketing: Roll this document out as if it's a product launch. Host town halls, webinars, and one-on-one sessions to ensure everyone understands the new ethical guidelines.
To learn more, click here
3. Internal Controls via ERP Systems 💭 →
Once alignment and ethics are set, it's time for the concrete to dry. You can install a robust ERP system that is the custodian of all your financial data. This isn't an IT project; it's a transformation project.
Reputable options like SAP S/4HANA or Oracle ERP Cloud are worth considering, but due diligence in vendor selection is crucial.
Phase 1: Scoping: This is an enterprise-wide effort. Gather detailed requirements from each department and unify them into a single 'needs document.'
Phase 2: The Hunt: Now, begin the vendor selection process. Balance cost, capabilities, and customer service in your evaluation metrics.
Phase 3: Pilot Testing: Choose a low-risk area of your business for a test run. You should iron out any issues before you go big.
Phase 4: Full Roll-Out: Once satisfied with the pilot, go full-scale. Make sure to have a contingency plan in place to handle any surprises.
To learn more, click here.
Small ask: If you enjoyed today’s post, I’d be incredibly grateful if you helped others discover The Bottleneck. Please hit me with a fav or repost on my tweet below.
One thing that never fails to amaze me:
Committing financial fraud in the silliest ways.
Having money won't help you solve your problems. You'll only get caught eventually
A few funny stories I've heard before:
- Buying two jaguars at the same time (the car and the animal)… twitter.com/i/web/status/1…
— Rameel Sheikh ⚙️ (@ramshe1000)
Oct 16, 2023
What Next: 3 resources to learn more
Bonus: What I consumed this week
Tool of the Week
Check Out: A new tool I found this week (Not sponsored)
Quickbooks needs an upgrade. As I’ve looked to automate the financials for the Bottleneck, I’ve discovered Puzzle.
Try out Puzzle to get automated financials, insights, accruals & advice - all in one.
It's crucial to monitor your spending and purchases from day one.
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Brain Teaser Answer
For Fun: Trivia question in the intro
Financial fraud by African founder
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