Starting a business is easy, but maintaining and growing is a different game altogether. FP&A teams are charged with the responsibility to provide data & insights to maintain and grow the organisation.
Finance professionals' primary responsibilities lie in planning, analysing and reporting the financial activities of an organisation. They interact with several reports daily to aid in their forecasts and financial analysis, but these 8 take the top spot in keeping your organisation agile and nimble.
These reports have strategic importance, as keeping them handy will drive your agile organisations forward faster.
A budget is a plan made by the finance team which contains all the spending limits of all the departments and teams for a particular period. It gives a fair estimate of all the expenses and income of the organisation.
Finance teams should constantly rely on the budget to ensure departments stay within their spending limits. Ensuring the same will also make it possible to allocate resources efficiently to the departments that need them on time.
A cash flow statement shows where your cash is being used and the money we will receive on a future date. Knowing this critical information will help plan and ensure teams have cash available for their operations. A cash flow statement also clearly shows where the cash is being generated. Leaders can rely on this information to do better resource allocation.
The cash flow statement is a primary element for investors to consider if a company is financially healthy. A positive cash flow attracts investments, and a negative cash flow leads to a loss of trust among investors.
KPI stands for Key Performance Indicators, elements measured to understand the company's position. They can be different aspects of business and differ from industry to industry. For example, for a retail entity, the indicators can be CAPEX, Footfalls and Customer Satisfaction Score (CSAT).
A balance sheet shows the position of a company in terms of assets and liabilities for a specific period. A balance sheet shows three main elements assets, liability and equity. A previous year's balance sheet is a good start for accounting for the current year. For example, finance teams use cash in the previous year's balance sheet to start accounting for the current year. Apart from a starting point, it also helps in understanding the leverage a company holds, its liquidity, and its efficiency.
Once the balance sheet is prepared, the finance team starts analysing the financial health through financial ratios. Knowing the company's financials helps leaders plan for uncertainties. For investors, it shows how the company is leveraging its equity and its plans for future projects.
Income statements account for a company's revenues, losses, income, and expenses for a period. Leaders rely on income statements to make strategic decisions like expansion and increasing product lines. And when leaders experiment with any product changes, they can easily analyse the difference using an income statement. Comparing YOY performance will help determine any leakages in the business.
A business runs on a business plan based on the leaders' forecasts for the organisation. A forecast contains all the projections based on historical data like cash flow statements, balance sheets, profit & loss statements and KPIs, to name a few.
These forecasts help in keeping track of the progress of the business activities for the year. Creating a forecast not only aids in anticipating future financial outcomes but it also helps in preparing for unexpected events.
By documenting the forecast, key performance indicators (KPIs) can be established to track progress towards goals. Moreover, documenting forecasts helps to communicate objectives clearly to all stakeholders.
Variance analysis is when actuals are compared with forecasts in simple terms. For the finance teams, it can be comparing standard costs to actual costs, and doing this, pinpoints where inefficiencies lie and how leaders can manage this difference.
In addition, it helps identify trends and confirm if the estimates are close to the actuals. Variance analysis also ensures accountability among leaders of various departments/teams.
If done regularly, the finance team can discover roadblocks ahead of time, which is essential for today’s agile organisations. This analysis also allows leaders to be flexible regarding resource allocation during this period.
A management report shows the financial and operational performance of an organisation. Unlike other reports, they are customized to serve the organization's needs, and leaders see what they need to see to make decisions.
When used with relevant financial information, it helps all the stakeholders understand where the organisation is headed. It aids decision-making by providing critical information to decision-makers and is a good communication vehicle for all internal stakeholders.
While other financial reports show past data, the management report shows a mix of the organizations' past, present and forecasts.
Financial reports are vital for FP&A teams, providing crucial information on a company's financial health, performance, and trends. They enable data-driven decisions, pinpoint areas for improvement, and assist in forecasting and strategy development. Financial reports also aid communication with stakeholders and facilitate informed decision-making.
The 8 Essential Financial Reports
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