Three Ways to Prepare for 2020 Year-End Financial Reporting

The new year is quickly approaching, which signals one big thing for finance teams: annual end-of-year reporting. Traditionally, priorities for December include budget forecasting for the upcoming year, preparation for tax season, and ensuring that compliance and regulatory requirements are met.

As expected though, 2020 is different. Organizations must consider an array of nuances with this year’s numbers—including the financial impact of COVID-19—to properly frame financial statements with leadership and accurately inform 2021 budgets.

No one truly knows what to expect in 2021. However, the right reporting and budgeting practices can help businesses gain control and enable flexibility as we hope for better times ahead. Here are three considerations that companies should bear in mind within the context of this new year-end normal.

Adjust Reporting to Calculate This Year’s Anomalies

The financial cost of the pandemic cannot be overstated. Not only did companies experience extreme fluctuations in revenue, but they also had to adapt to swift changes in operating expenses that weren’t planned. Many companies shifted to hybrid or fully remote work in 2020—a process that led to some out-of-the-ordinary employee expenses, such as at-home office furniture or internet connectivity. These expenses were pivotal in enabling remote work but borrowed budget from other areas of the business.

SAP Concur insight into expense programs across companies of all sizes demonstrates this trending shift from office to home expenses and new expense categories. Spending in the second quarter of 2020 showed that categories such as “fees/dues” and “internet/telecom” grew incrementally. Additionally, the expense category labeled “other,” often used to address outlier or unexpected expenses, rose by 17 percent and is continuing to grow.

As part of 2020 year-end reporting, seek to set up internal reporting processes that effectively capture these unplanned spend categories to inform leadership of the financial impact, and use the insights to map out 2021 budgets. Set up an expense category to house all unplanned COVID-19 related expenses if one hasn’t been created already. Then, communicate with department and team leads to ensure employees use the new code accordingly.

Also, work with department leads to document planned expenses that weren’t used. For example, connect with travel managers to report unspent money from grounded travel programs and canceled flights. Be sure to inquire with airlines or travel management companies about unused ticket credits to factor into future travel budgets once travel resumes.

Lastly, apply these insights as additional context in year-end reports to provide a comprehensive overview to leadership. Any windows in company spend could provide an opportunity to make recommendations for budget allocations in 2021, such as new technologies to simplify workflows or generate new revenue streams. Many businesses are starting to lean into artificial intelligence and machine learning algorithms to make quick decisions, based on real-time financial transparency, to meet business needs brought on by the pandemic. This includes managing spending in near real time to improve budget management and liquidity, increasing compliance and eliminating errors, and maximizing profitability.

Let Today’s Trends Guide Future Forecasting

Economists are uncertain how long it will take for things to return to pre-2020 levels, but predictions are for a slow increase versus a sudden improvement. Don’t be afraid to be realistic. Carefully consider how things have trended in 2020 and let that guide budget forecasts and goal setting for 2021.

Business goals may look very different than they did at the end of 2019. That is not only ok but necessary in this new normal. A dose of reality is essential to proper business operations in the coming year.

Additional flexibility also may be required; it may be worth reconsidering the company’s financial reporting and forecasting schedule moving forward. McKinsey research found that 65 percent of surveyed CFOs “anticipate more use of rolling forecasts in 2021 and beyond.” Leverage expense and procurement systems to adjust policies on the fly as circumstances change. Check company reporting tools for automatic email alerts or report bursting capabilities. These tools enable email alerts based on pre-defined data triggers and allow users to distribute the contents of a report to groups for real-time updates. Use these insights to adjust cost controls dynamically as needed.

Ensure Stakeholders Understand the Full Context

Everyone understands that this year has introduced many unusual and unpredictable circumstances. However, that doesn’t mean that everyone fully grasps the big-picture impact on business goals this year and next, nor the specific instances that left the biggest mark.

As teams tee up for year-end financial conversations with leadership and key stakeholders, don’t assume that everyone is already on the same page about how the context has affected employees, results, and forecasts. Some granular preparation—even if just for internal consumption—may be required.

Dig deeper into timelines and trends that may have impacted the bottom line or informed goals for 2021. When a C-level executive asks why sales took a nosedive one month, or why forecasts are lower than in 2020, finance will have a solid and honest answer—with real-time data to back it up—already on hand.

2020 has been a year like no other, and the experience is sure to shape how companies conduct business for many years to come. Year-end financial reporting processes will follow suit. Organizations face a great deal of uncertainty as they head into 2021, but if done right, year-end financial reporting can help with planning and preparing for whatever comes next.

=========

A.G. Lambert is SVP of Product Strategy, SAP Concur.