I have any number of takeaways from the Goldman Sachs experience. One takeaway deals with the way they handled financial management.
I was thrilled when listening to the testimony.
I remember that, as our business began to accelerate rapidly in 2003/2004, I wanted to get more and more current financial information into the daily Flash Report. Prior to that time, the daily Flash Report gave me some metrics and certainly gave me daily performance figures. It also gave me daily cash balances, payables, and a number of other items. However, what it didn’t give me and what the $2 million software system we installed in 2007 couldn’t provide was daily Profit & Loss Statements, and it didn’t even occur to me that I could get it.
As I listened to one of the witnesses on Capitol Hill this past week identifying how Goldman was in real time in assessing the exposure they had to a long position in mortgages, it occurred to me that I had completely blown it.
I don’t remember who the witness was, although I probably would be able to find out going through the tapes. However, in a nutshell, what the witness indicated is that Goldman execs received, on a daily basis, a P&L Statement, marked to market. In other words, on a daily basis, they knew exactly what their positions were, what the values of their positions were, what their exposures were, and what profit or loss they experienced in the prior day. They had that data at their disposal every morning for them to be able to evaluate, think about, discusss, and execute on.
I have no idea whether the concept of daily P&L statements – marked to market – is common convention in big-time corporate America. I do know that, with sophisticated accounting, and annual audits as well as management letters supplied by Coopers & Lybrand, Price-Waterhouse Coopers, and Grant Thornton, respectively, I never implemented it.
But if it’s good enough for Goldman, it will clearly be good enough for me.
So rest assured, henceforward, that in any business operation that scales past $10 million annually, my intention is clearly to provide daily P&Ls as part of the daily Flash Report I receive.