Draft
The Enhanced Business Reporting Framework for Private Companies
July, 2006
Exposure Draft
The Enhanced Business Reporting Framework for Private Companies
July 2006
The Private Company Enhanced Business Reporting Framework [1] is a comprehensive information framework to help a private company better communicate with key internal and external stakeholders about business strategy and current and expected performance. Use of the framework is voluntary and will vary depending of type of industry and size of organization. This framework is based on the ‘Enhanced Business Reporting Framework’ created by the Enhanced Business Reporting Consortium (‘EBRC’).
To make better informed decisions, stakeholders such as business owners, management and creditors need information about the key elements of a company’s business that are the sources of its value. These elements may be measured numerically through financial or non-financial key performance indicators or they may be assessed qualitatively by describing factors such as business opportunities, risks, strategies and plans—all of which permit assessment of the quality, sustainability and variability of a company’s cash flows and earnings. This framework provides the structure within non-financial sections of business reports to allow a private company to clearly communicate the current state of the company, its business strategy and prospects for the future. The information categories- Business Landscape, Strategy, Competencies & resources and Performance – provide examples of types of enhanced information that could be disclosed. They are not intended to be applied in a comprehensive manner. In addition, illustrative examples are included, as needed, to provide further clarification as to the type of disclosure. It is up to the company to determine which aspects of the framework-- including categories and important information-- are most crucial, based on its business model and the information needs of potential users.
We distribute this framework as a starting point for discussion. The task of creating the future of business reporting will require continuous imagination, innovation and improvement. We look forward to open and spirited discussion to build upon this foundation.
Enhanced Business Reporting Framework for Private Companies
Business landscape / Overview
Competition
Customers
Technological change
Owner relations
Capital availability
Political
Regulatory
Strategy / Business model
Organization & governance
Risk management
Environmental & social
Competencies & resources / Key processes
Customer satisfaction
People
Innovation
Supply chain
Intellectual property
Information & technology
Financial assets
Physical assets
Performance / Financial measures
Nonfinancial measures
Business landscape
This section provides the company’s perspective on the business and economic climate as well as on other external forces that could affect the entity’s business strategy and its ability to achieve success.
Overview
· Discuss the business operations in terms of markets served, geographic locations, market stability, range of products and services, market size and competitors
· Discuss the effects of market conditions on past performance and management’s expectations of changes in the market and the company’s growth potential
· Discuss the company’s capacity to withstand changes in forces beyond its control
o For example: Interest rates, market demand, and the related effects on operations
· Discuss the ability of the company to respond to the changing business environment
o For example: Flexibility to change product mix, marketing or distribution methods, and access to additional capital
Competition
· Identify the key factors for competitive success within the industries and geographic areas where the company operates
· Discuss the company’s strengths and weaknesses relative to the capabilities of existing and potential competitors
· Describe the impact of any recent or anticipated change in competitive advantage
Customers
· Describe in general terms the effects of changing customer needs and expectations for quality, pricing, faster delivery on past and future performance
· Identify and discuss the effect of environmental, demographic, social or cultural trends on the company’s customer base and on demand for existing and planned products
o For example: Aging population, energy conservation awareness or water shortages.
Technological change
· Discuss the company’s understanding of the nature and sources of potential technological innovation that could affect its industry sector(s), existing and planned products and the effects on past and future performance and sustainability of operations
Owner relations
· Discuss the company’s plan for management continuity or transfer of ownership upon retirement, death or incapacity of current owners/managers to ensure long-term sustainability
Capital availability
· Discuss the company’s ability to access the capital it needs to fuel growth, execute strategies and generate future financial returns
o For example: Additional owners’ investment, short or long-term borrowings
Political
· Discuss the risks and potential adverse consequences resulting from political actions in another country
o For example: Expropriation of assets without compensation, currency blockage, disruption of availability of imported products, additional tariffs on products, or outsourcing relationships
Regulatory
· Describe, as applicable, management’s process to monitor the regulatory and legislative climate and the potential effect of changing regulations and laws on the company’s operations
o For example: Building moratorium, changes in labor or immigration laws, taxation changes or limitations on resource consumption
Strategy
This section builds on Business landscape and communicates not only the business strategy, but also how the organization and the underlying structures support the execution of strategy.
Business model
· Describe how the company generates cash flow and creates value - what makes the company’s model distinctive and how the model helps management/owners make and execute decisions to clearly differentiate their brands, products/services and capabilities from competitors
· Describe the product/services and how management prioritizes its offerings and balances its businesses in a strategic context
o For example: How management monitors products and services along the life cycle-start-up, growth, maturity and decline
· Discuss plans to invest in, grow, maintain or divest products and services as well as plans for growth through acquisition, joint venture or strategic alliances
· Describe how the model is updated on a timely basis in response to things such as changing customer expectations, pricing structures and competition
· Describe how management sustains competitive advantage by channeling scarce resources toward those opportunities that provide the best prospects for balancing risk and reward
Organization & governance
· Describe the company’s organizational structure, culture and value system, and how these factors affect responsibility and authority and provide incentives for the execution of its business strategies
· Discuss how the company defines its culture and values
· Describe how the company manages governance
o For example: Board and management performance, fraud, and illegal and unauthorized acts
Risk management
· Describe the principal business risks facing the company and discuss the approach used to identify and mitigate business risks
Environmental & social
· Discuss whether the company’s business model identifies environmental and social matters as strategic priorities
· Describe how the company manages its environmental responsibilities
o For example: Pollution controls, handling of toxic materials, recycling, and providing a safe working environment
Competencies and resources
This section should describe how the company manages available resources and competencies to execute the company’s Strategy. A principal goal of this section is identification and discussion about value drivers—the elements of a company’s business that are the sources of its value.
Key processes
· Describe the core processes in which the company has as a primary competency and must successfully execute to create value in the business model
· Discuss the company’s use of benchmarking[2], if applicable, its critical processes against standard process definitions, peers or leaders in other industry sectors to ensure continuous improvement
o For example: Benching service quality against complaints per thousand
Customer satisfaction
· Identify the factors that ensures relevant focus on customer satisfaction
· Describe how customer relationships are managed and monitored
· Discuss processes to monitor changing customer needs and expectations
· Discuss process related to continuous improvement in products and services
People
· Discuss processes to recruit and retain people and to ensure that people possess the requisite knowledge, skills and experiences to support execution of the business strategy
· Describe ways a company motivates performance
o For example: Incentive plans
· Identify and describe processes used for obtaining and sharing knowledge and promote learning across the company
o For example: Job rotation programs, continuing education & training, mentoring programs
Supply chain
· Identify key supplier relationships and provide an overview of the companies supply chain
o For example: Company strategy to mitigate risks of shortages and higher costs. Adherence to company’s quality specifications
Intellectual property
· Describe the risk and opportunities related to intellectual property
o For example: Trademarks, copyrights, patents, work for hire, nondisclosure agreements
Information & technology
· Describe processes to ensure that technologies used are operating as intended and that integrity and reliability of data and information privacy are not compromised
· Describe how the company uses technology to create a competitive advantage
Financial assets
· Describe management’s strategy related to access of and management of capital
o For example: Additional owner investment, short or long term borrowing, additional outside investment
Physical assets
· Discuss plans for significant investment in or retirement of physical assets
o For example: Consolidation of facilities, replacement of old equipment, new plant or office building
Performance
This section provides insight into the company, its operating segments and its management’s performance over time. Where appropriate it is useful to explain the linkage between Performance and Business landscape, Strategy and Competencies & resources.
Financial Measures
· Disclose and discuss key performance indicators reflecting performance
o For example: Gross margin, cash flow returns, return on invested capital, net working capital to total assets, current ratio, days in receivable, payables turnover, weighted average cost of capital, interest coverage, debt ratio, revenues from new products introduced in prior years and retail sales per square foot.
Nonfinancial Measures
· Disclose and discuss key performance indicators reflecting performance
o For example: Customer churn rate, occupancy rate, return on investment, employee satisfaction , competency, absenteeism and tardiness rates, customer satisfaction, speed to market, effectiveness of product launch and production time lost
Enhanced Business Reporting Framework for Private Companies
Exposure Draft
4/19/2010
Page 6
[1] The Exposure Draft ‘Private Company Enhanced Business Reporting Framework’ substantially based on the ‘Enhanced Business Reporting Framework’ created by the Enhanced Business Reporting Consortium (‘EBRC’) http://www.ebr360.org/ContentPage.aspx?ContentPageId=25. This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (expressed or implied) is given as to the accuracy or completeness of the information contained in this publication.
[2] Industry data for benchmarking may not be available