How much detail should we show investors?

“We give our board a fairly standard balance sheet and income statement every month, but recently I was chewed out for ‘hiding’ a major collections problem in the accounts receivable line item. So for our next meeting I added an appendix with details on every transaction that took place during the month. The board didn’t like that approach, either. I’m really sweating about what to do for next month. Help!”

Mike: Board reporting is always a tricky problem. A good rule of thumb is to give the board a traditional big-picture view of everything that’s going according to plan, and then provide more detail about specific problem areas. For example, if collections are behind plan, add a note to the balance sheet that describes three items–the difference between forecasted and actual DSO (“days sales outstanding”), an aging summary (0-30 days,61-90 days, and 91+), and a list of significant problem customers. With this kind of detail, the board members should be able to see easily what’s happening–and they’ll probably trust you more if they feel YOU have a clear picture of the problem.

In general, you should also provide breakout detail for other major balance sheet accounts. For instance, show cash balances by bank and type of account, amounts due to major creditors (with an aging summary), inventory and inventory turns by product line, and details of any major accrued expenses. Any item that has a “material” impact on the business should be highlighted, so the board won’t be caught by surprise if something blows up.

The ASK MIKE is a weekly column providing answers from finance and small business expert Michael Gonnerman. Mike has served as a trusted advisor to hundreds of technology CEO’s and investors as well as served on more than two dozen corporate boards.

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