As we have discussed in past articles, effective financial reporting can increase your small business’ efficiency and transparency, as well as help you make better business decisions. In order to create effective financial reports, however, you need to have a basic understanding of what makes a financial report effective in the first place.
Effective financial reports are not basic charts reflecting a company’s financial status or sheets of paper with facts and figures. Effective reports show trends and answer questions rather than simply providing raw data to be sifted through at a later time. They provide insight into a company’s unique financial situation and help solve problems before they even begin.
Effective financial reporting is crucial if you wish to grow your business. Without effective reports, your company will remain stagnant and your questions will remain unanswered. Take a look at the following characteristics that make up effective financial reporting:
- Effective financial reports show context and keep investors in mind.
Effective financial reports begin with the end in mind, or rather, the investors in mind. Your financial reports should provide your investors (or potential investors) with context. This can be achieved through written anecdotes, honest disclosures, and compliance with accounting standards, regulations, and rules. - Effective financial reports are a result of automated processes.
Even if your financial accounting system has automatic controls built-in, do not assume that these are turned on or configured properly. Automated controls are often overridden or bypassed, so you need to ensure that your financial reporting team has access to the tools they need to make reporting efficient and compliant. - Effective financial reports are compliant reports.
Compliance is a must when you are dealing with financial reporting for businesses. If you are not aware of the rules and regulations, you need to brush up on these ASAP. By maintaining compliance, you will avoid filing errors and labor costs. Effective financial reporting requires the use of software that is able to deliver important information accurately and, ultimately, provide a large return on investment (ROI). - Effective financial reports follow the Disclosure Management Cycle.
The Disclosure Management Cycle outlines the life-cycle of a financial report. The cycle includes:- Setting internal controls
- Applying reporting procedures
- Benchmarking best practices
- Receiving regulatory input
- Submitting to industry regulations
- Distribution to the public
- Review of the report
- Suggestions for improvement
- Effective financial reports are created through company collaboration.
In order to create more effective financial reports, you need to have collaboration among your business team. Encourage dialogue between your financial reporting team and other department managers. Streamline communication throughout your business and implement more robust systems to create a seamless exchange of information across departments. This will ensure that your financial reports are not missing any crucial information.
Your financial reports can open up a new realm of business opportunities. By improving your financial reporting process and creating more effective financial reports, you are increasing your efficiency and transparency. For more effective financial reporting tips, stay tuned to our blog. We will be highlighting key tips and tricks to help businesses like you accomplish your financial goals.