Numbers paint a picture, tell a story, reveal the truth. As such, it's critically important that your financial reporting is accurate, thorough, and up to date.
As one of the minds leveraging those numbers, it's your job, as part of the finance team, to tell that story and paint a picture that helps everyone better understand your company's financial performance--all to get to the truth behind your organization's total health. Whether you use a financial reporting software, or manual processes one of the most important tools you'll draw on to achieve that is your financial reporting.
If you're looking to improve accuracy, streamline workflows, or gain deeper financial insights, this guide will answer questions to provide the knowledge and strategies you need to enhance your reporting process.
Financial reporting provides a comprehensive picture of your business's financial results and trends. It involves the preparation and dissemination of financial statements that disclose a company's financial position, performance, and cash flow. It provides a detailed examination of the company's financial health and serves as a tool for future planning and decision-making.
Financial reporting helps deliver insights and informs the decisions made throughout your organization and beyond. Everyone from your executives, board members and department-level staff, as well as the regulators, creditors and stakeholders with a vested interest in your organization, rely on the numbers revealed within your financial reporting.
Your income statement, balance sheet and cash flow statement provide a key piece of your organization's story and make up the foundation of your financial reporting.
Together, the three statements form the base of the reporting you file for tax purposes and creditors, the documents you provide to regulatory bodies like the U.S. Securities and Exchange Commission (SEC), and the data you draw on for your annual report and internal documents, dashboards and reporting. Let’s drill down a little on all three.
Sometimes referred to as a profit and loss statement (P&L), an income statement outlines a company’s revenues and expenses and then calculates a profit or loss. Income statements are typically generated on a regular basis, such as monthly, quarterly, or annually.
In addition to tracking profitability, an income statement can also identify costs to pinpoint where expenses are too high, support decision making such as pricing, budgeting, and cost-cutting strategies, and attract investors or lenders by demonstrating profitability and positive sales trends.
Also known as your statement of net worth or statement of financial position, your balance sheet looks at your business's total assets, liabilities and shareholders' equity.
It allows you to measure rates of return and demonstrates how your assets are financed--whether through debt or equity.
A cash flow statement hows how cash moves in and out of a business over a specific period. It provides critical data on incoming cash (inflows) and outgoing cash (outflows) and shows whether a company has enough cash to pay bills and invest in growth. A cash flow statement also helps to identify trends in cash flow (e.g., seasonal fluctuations) while allowing investors and lenders to assess financial health and liquidity.
A cash flow statement can be prepared in two ways: the direct or indirect cash flow methods. Both calculate your net cash flow from operating activities.
The main distinctions are the starting point, the types of calculations you use, and the level of detail in the information you disclose.
Financial reporting allows businesses to turn information into action stakeholders are empowered to make decisions that are best for business.
Other benefits of financial reporting include:
Just because financial reporting is so critical and pervasive, doesn't mean it isn't without its challenges.
Financial reporting requires significant time investment.
Financial reporting with Excel can be time-consuming and tedious. Pushing its limits for data sourcing, manipulation, and sharing strains your team and resources.
Inaccuracies may arise in income statements, balance sheets, and cash flow statements.
There's potential for inaccuracies. With all of that manual labor comes the chance for-- even the inevitability of--mistakes. Those could come in the form of information that gets lost in translation. Or, they could be the result of data that is entered incorrectly. Whatever the reason, those mistakes can be more than just a nuisance. They can have serious repercussions on your final published results and the accuracy of your regulatory and stakeholder reporting.
Incompatibility of data between departments .
Yes, the data your financial reporting offers will be integral to your organization's success. But when it exists in a silo, it's harder to apply to the deeper analysis you need.
It can be incompatible with deeper analysis.
By bridging your different types of reporting--and using technology that allows you to drill down into deeper levels of detail, apply real-time forecasting and visualize your data in various ways--you can start to build more powerful insights from your numbers.
Find out how Vena customer PRGX Global took action to overcome their reporting hurdles.
Of course, your financial reporting isn't the only type of reporting happening in your organization. Management reporting (or managerial reporting) and operational reporting are just as important for building your business, moving your organization towards its goals and providing an up-to-the-moment picture of your day-to-day operations.
They'll help you better understand the root causes of your organization's financial health. Let's look at each in turn:
As outlined above, your financial reporting looks at your financial results and supporting information. In doing so, it provides you with key data that informs your internal business decisions and is shared externally with shareholders, regulators, creditors and investors. As such, it needs to meet certain regulatory requirements and follow a specific format.
Managerial reporting isn't regulated in the same way. That's because, for the most part, your managerial reports are only used internally, for everything from your day-to-day decision making to Board of Directors reporting. You may choose to include forecasting or predictive data, segment down to different parts of the business or departments and incorporate an operational view for a fuller, more integrated picture of your business.
Operational reporting shares the details of your organization's day-to-day operations with data around such things as production costs, resource expenditures and the processes you have in place. How often you choose to report on each will depend on your organization. But the point is to concentrate on the short term and drill down into the areas that will provide the insights your company needs to operate day to day.
While financial, managerial, and operational reporting serve different purposes, they all play a vital role in ensuring a business runs efficiently and strategically. Together, this reporting will tell a fuller story of your business and its needs.
Using the right automation tools can streamline your financial, managerial, and operational reporting allowing you to create accurate reports in less time.
Automation of repetitive tasks also allows your team to analyze data and guide your business strategy. The benefits of automating financial reporting include:
Automation can also help you build a better audit trail by creating a log of your data, workflows and processes. This gives stakeholders a lens into the data you pulled from and the calculations you performed and helps identify any potential errors that might have happened along the way.