Do you know finance is the most critical area in the business? Finance is one of the essential aspects of the company. It plays a key role in the overall business success. Modern business finance is more than accounting and bookkeeping. Analysing financial situations help companies make important decisions and track financial performance in real-time. Staying on top of financial matters will bring organisational success and help you make informed business decisions.
As a business owner, accurate finance reporting becomes crucial to help you understand your business and identify opportunities to take your business to another level. It will also help you remain compliant and streamline your process. Financial reporting provides deep insight and assesses performance to plan for the future ahead. Financial reporting provides essential information to agencies, debt holders, investors and other key stakeholders.
What is Financial Reporting?
Financial reporting is a practice of accurately depicting information related to a company’s finances, expenses, profits, capital and cash flow information. Each of these parameters is important to know the financial position. If you follow the right approach in business, it will bring the most promising returns to your business. As per Mckinsey, leveraging data helps businesses create better marketing reports and make informed decisions and boost productivity by 15 to 20%. Now, let’s see the benefits of financial reporting and analyse it in detail.
Benefits of Financial Reporting
1. Debt Management :-
Financial reporting is critical to managing the debt and current liabilities of the business. Financial statements help businesses with current assets and liabilities with a focus on managing debts. With the right financial analyses, you can divide your current assets by the current liabilities and find out your liquidity.
2. Tax Benefit :-
Financial reports can help with tax-related issues. Most departments use such reports to calculate taxes and mitigate risks of errors and missing important tax filing dates. It helps companies stay compliant with the rules and regulations of the government. This helps in relieving the overall burden on a company’s shoulder. With timely and accurate financial reporting, you can manage your taxes quite well.
3. Manage cash flow :-
Many businesses struggle to maintain a stable cash flow. Every business is prone to cash flow problems and market disruptions. Analysing cash flow helps you understand your cash position and know your profits and liabilities. It will further streamline the cash flow process. Working with KPIs will tell you how to manage cash flow and anticipate profit and liabilities.
4. Mitigate risk :-
Mitigating risk is another benefit of financial reporting. Financial analysts identify inefficiencies and errors in your business and use software to improve processes to obtain 100 per cent accuracy. Financial reports have complete data analysis to make informed decisions and investments. Also, small initiatives can improve data security and prevent financial fraud.
5. Improve relationships :-
Financial reporting and data open a lot of new doors for strategic planning and building relationship with external members, employees, creditors and investors. Real-time data analysis improves your company’s reputation and brings everyone together. A company’s transparency and accuracy through providing information related to debt-equity ratio, and return on assets, working capital ratio, the current ratio shows that you are committed to the progress and overall success of your company.
Who Needs Financial Reporting?
Financial reporting is extremely important from the perspective of loans. Investors/lenders need to know the financial position of your company through financial statements, balance sheets and other details. Plus, they want to know how well a company is doing in terms of earning profits.
Stakeholders also need financial records of the company too. If they have invested equity in your firm and own a major share in your firm, then you need to provide the essential information like assets, liabilities, profits and revenues of your company. Typically, stakeholders are customers, employees, communities and trade associations with a vested interest in the company.
Financial reports are also useful for internal decision-making. Financial analysis helps you get a clear picture of your financial situation to build strategies and find out ways to cut extra costs for earning profits. It is a method to identify possible ways to avoid losses and maintain profitability in the business. In a nutshell, these reports are critical to building effective financial strategies and keeping a company more profitable. Not only this, it can facilitate audits too. The statutory audits are a great way to find the accuracy of your financial report. It is a method to analyse the profit and loss of the company through the balance sheet.
If you want accurate and error-free financial reporting, you can outsource CFO services or hire experienced financial analysts today. Financial reporting helps all types of businesses form strong relationships with their stakeholders and raise capital for their companies. So, ensure not to make any mistakes with financial reporting.