Does it feel like your business isn’t growing? It could be because your team lacks crucial financial reporting and analysis capabilities that help track key business metrics and trends. Without the right tools to stay up-to-date on what’s happening across the business, it can be difficult to make informed decisions on how to best manage it and help it grow.
Regardless of your sector or industry, it’s likely that your financial department is the beating heart of your entire operation. Without financial fluency, it’s difficult for an organization to thrive, which means that keeping your monetary affairs in order is essential.
As a business, you need the reliability of frequent financial reports to gain a better grasp of your financial status, both current and future. In addition to empowering you to take a proactive approach concerning the management of your company’s finances, financial reports help assist in increasing long-term profitability through short-term financial statements.
Ensuring timely and accurate financial reporting and analysis not only helps you to better understand the performance of your business, but also helps you to identify business opportunities to make the right decisions for future growth.
So, what exactly is financial reporting and why is it vital?
A financial report is a management tool used to communicate key financial information to both internal and external stakeholders by covering every aspect of financial affairs with the help of specific KPIs.
Your business needs these reports to help support certain business financial objectives and enable you to provide useful information to investors, decision-makers, and creditors, especially if you work as a financial agency and need to create an interactive client dashboard. But not only, as it can also support your business in determining:
- If your business can effectively generate cash and how that cash is used.
- To reveal specific business transaction details.
- To follow the results of your finances so you can identify potential issues that are impacting your profitability.
- Develop financial ratios that show the position of your business.
- Evaluate if your company can pay off all of your debts.
Daily reports, however, have a limited impact, as most of the financial KPIs that are used need a mid- to long-term monitoring, and do not provide accurate information if analyzed only on a daily basis.
What is Financial Reporting?
Financial reporting is a standard accounting practice that uses financial statements to disclose a company’s financial information and performance over a particular period, usually on an annual or quarterly basis. In simple terms, a financial report is critical for understanding how much money you have, where the money is coming from, and where your money needs to go. Financial reporting is important for management to make informed business decisions based on facts of the company’s financial health. Potential investors and banks will also use your company’s financial reporting to decide if they want to invest or loan your money.
Understanding The Importance of Financial Reporting
Without financial reporting, it’s difficult to understand how well a company is performing from a financial standpoint. Not only are financial reports crucial for management or investors to assess a business’s financial stability, but they are required by law for taxes and standard accounting practices.
Here are the top reasons financial reporting can benefit your small business:
Make Better Financial Decisions
Analyzing and understanding financial statements is key when a business needs to make an important decision. Financial reports allow management to identify trends, potential roadblocks, and actively track their financial performance in real-time. Staying on top of your financial statements will give you the foundation you need to make quick and sound economic decisions when the time comes.
Manage Debt
Financial statements provide business owners and management direct insight into their company’s current assets and liabilities. Also, on how they should effectively manage their company’s outstanding debt moving forward.
Simplify Your Taxes
Financial reports are required by law for tax purposes and the Internal Revenue Service (IRS) uses these reports to evaluate a company’s tax income. Accurate financial reporting mitigates the risk for error and saves an immense amount of time. It relieves the overall burden that comes along with filing your company’s taxes each year.
How to Make a Financial Report?
To create a comprehensive financial statement and/or report, you need to keep these points in mind:
1. Define your mission and audience
No matter if you're a small business or large enterprise, you need to clearly define your goals and what are you trying to achieve with the report. This can help both internal and external stakeholders who are not familiarized with your company or the financial data. If you're creating an internal report just for the financial department, it would make sense to include financial jargon and data that, otherwise, would create challenges for external parties to follow.
By defining the mission and audience, you will know how to formulate the information that you need to present, and how complex the jargon will be. Create a draft of the most important statements you want to make and don't rush with this step. Take your time, the numbers, charts, and presentations come later.
2. Identify your metrics
In this step, you need to identify the key performance indicators that will represent the financial health of your company. Depending on the selected metrics, you will need to present the following:
Balance sheet: This displays a business’s financial status at the end of a certain time period. It offers an overview of a business’s liabilities, assets, and shareholder equity.
Income statement: This indicates the revenue a business earned over a certain period of time and shows a business’s profitability. It includes a net income equal to the revenues and gains minus the expenses and losses.
Cash flow statement: Details a business’s cash flows during certain time periods and indicates if a business made or lost cash during that period of time.
These financial statements will help you get started. Additionally, you might want to consider specific KPIs and their relations. Gross profit margin, operating profit margin, operating expense ratio, etc., all have different applications and usage in a relevant financial data-story. Take your time to identify the ones you want to include in your financial report of a company in order to avoid multiple repeats afterward.
3. Choose the right visualizations
Continuing on our previous point, after specifying the financial statement and metrics you want to add, it's time to include visuals. This point is important since the average reader will struggle to digest raw data, especially if you work with large volumes of information.
The type of chart is important to consider since the visuals will immediately show the relationship, distribution, composition, or comparison of data, therefore, the type of charts will play a significant role in your reporting practice. Here is a visual overview that can help you in identifying which one to choose:
4. Automate your financial management report
Automation plays a vital role in today's creation of company financial reports. With traditional reporting, automation within the application is not quite possible, and in those scenarios professionals usually lose a lot of time since each week, month, quarter, or year, the report needs to be created manually. Automation, on the other hand, enables users to focus on other tasks since the software updates the report automatically and leaves countless hours of free time that can be used for other important tasks. We will see a simple financial report sample created with automation in mind below in our article.
For example, you can schedule your financial statement report on a daily, weekly, monthly, or yearly basis and send it to the selected recipients automatically. Moreover, you can share your dashboard or select certain viewers that have access only to the filters you have assigned. Finally, an embedded option will enable you to customize your dashboards and reports within your own application and white label based on your branding requirements. You can learn more about this point in our article where we explain in detail the usage and benefits of professional embedded BI tools
These reports are more digestible when they are generated through online data visualization tools that have numerous interactive dashboard features, to ensure that your business has the right meaningful financial data. Finally, these reports will give your business the ability to:
- Track your revenue, expenses, and profitability.
- Make predictions based on trusted data.
- Plan out your budget more effectively.
- Improve the performance of your processes.
- Create fully customizable reports.