Corporate Insight: The Monthly Narrative
Posted by Richard E. Reinderhoff
Every month the Managing Director or Country Manager has to report the business results to the CEO or internal board. Depending on the corporate structure, there are different narrative reports, each with a different focus. This defines the role of Financial Planning and Analysis (FP&A) and the information that needs to be collected for future growth. Two opposite cases will make the same point.
Narrative 1: The Wholly Owned Subsidiary
The first narrative is the traditional business. This is often an industrial business unit (BU) operating abroad, largely independent from head office. It can be considered a small or medium-sized enterprise (SME). Except for funding and investments, functions such as sales, marketing, services, accounting, human resources (HR), information technology (IT) or production are all based on site.
The 3 to 4 page narrative is divided into 4 parts:
- General, green flags and red flags. This is a bullet point overview. The ‘general’ section will be about sales events, hiring, restructuring and a view of the revenue and operating profit (OP). The green flag section includes good things happening in the business such as new clients, positive exchange rate movements or contract extensions. Red flags indicate the opposite. For example, a competitor offering a very low price during a public bid, clients with payment problems, or concerns around a potential recession.
- Financial summary. The key things to be included: Orders, Sales and Operation Profit (OP).
- Explanation of the financial summary. Normally, for each item you can expect several paragraphs explaining each number:
- Other relevant items. Additional items are covered here, such as head count or full-time equivalent (FTE), inventory, purchases, debtors and overdue debts, delivery performance and other key performance indicators (KPI’s).
The narrative report comes with all the other reports. This information package goes to head office, where the CEO and CFO analyse them before having a conference call with the Managing Director or Country Manager. If there is a divisional structure the treasury function and FP&A team may firstly carry out some further analysis or company consolidation. Other reports might include rolling forecasts, that include sales, Operational Expenses (Opex) and OP, cost reports or KPI overviews.
In short, the focus of the narrative will be on the health of the local business and future sales opportunities.
Narrative 2: Marketing & Sales Office
The second narrative relates to corporations where functions like production, services, accounting, HR, and IT are mostly centralised at a regional level and outsourced. The BU can be considered a marketing and sales office, dependent on products from a shared services centre (SSC) or centre of excellence (CoE).
The narrative is divided into 6 parts:
- Highlights summary. Here you can expect short statements on predefined corporate key success factors (KSF) such as sustainable growth, account-based marketing, innovative change or collaborative culture.
- Financial summary. This is all about the brands.