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Why financial reporting is a must for growing companies?

       
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Why financial reporting is a must for growing companies?

Why financial reporting is a must for growing companies?

'Avengers Assemble.' 

These are the iconic final words from Captain America before the epic battle with Thanos begins. We are no strangers to this Avengers battle against evil in the world. 

Just as the world needs the Avengers to fight Thanos, organisations need 'financial reporting' to combat the ever-changing business landscape.

Financial reporting is crucial for the overall success of any business. With accurate financial reporting, CFOs, Vice Presidents, and Finance Controllers would be able to identify opportunities for productivity improvements or adapt to changes in the competitive landscape.
 

Different users consuming financial reports


Not only do precise financial reports provide key insights into a company's performance, but they also fulfil essential regulatory compliance requirements and serve as baseline measures for evaluating future progress. 

This blog post will explore the significance & need for financial reporting and its types.

 

Importance and need for financial reporting. 

Financial reporting serves as a guiding compass for businesses, enabling the measurement and communication of a company's financial performance. Whether you're a small startup or a large corporation, it plays a pivotal role in making sound financial decisions. By collecting and analysing data, financial reporting helps you comprehend market trends, plan for the future, and identify potential revenue streams.

However, financial reporting is not merely about numbers and graphs. It fosters transparency and accountability, establishing trust with investors, customers, and all those who contribute to the smooth functioning of your business.

In today's fast-paced and ever-changing business landscape, it is increasingly crucial for companies to remain at the forefront of their financial reporting practices. With evolving business trends, accurate and timely financial reporting becomes indispensable for growing organisations in making informed decisions about the company's future.

Here are six key reasons why companies need financial reporting:

 

Simplifies regulatory compliance

Financial reporting is crucial for regulatory compliance, as companies are legally required to maintain accurate records and submit them to regulators. These reports confirm legal compliance and provide insight into the company's financial health. 

To meet IFRS and Multi-GAAP financial regulations, businesses must keep precise, current financial records. Failure to comply can result in penalties, fines, and damage to reputation, impeding business growth.

The average cost of compliance is around $5.5 million, while non-compliance can cost approximately $15 million.

By implementing strong financial reporting practices, businesses can avoid these consequences. These reports not only ensure legal compliance but also provide an accurate overview of the company's financial well-being.
 

Reveals Business Trends

Financial reporting is a key tool in identifying and understanding business trends. It provides a detailed overview of a company's financial performance, offering insights into revenue patterns, expense trends, and profitability. 

By analysing these reports, businesses can identify trends such as seasonal fluctuations in sales, growth in certain product lines, or changes in cost structures. These insights can help in informed strategic decision-making, helping businesses to capitalise on opportunities and mitigate risks. 

Financial reporting is a barometer, enabling businesses to track their financial health and navigate market dynamics effectively.
 

Builds Stakeholder Confidence

Financial reporting instils confidence in stakeholders by providing a transparent view of a company's fiscal health and performance. It offers investors, creditors, and other interested parties a basis for making informed decisions. 

By regularly sharing accurate and detailed reports, businesses demonstrate accountability and commitment to good governance. This transparency builds trust & and reassures stakeholders about the company's stability. Financial reporting is fundamental in maintaining stakeholder faith in the company's management and prospects.
 

Fosters strategic decision making

The primary purpose of financial reporting is to equip finance teams, business associates and department heads with the necessary information to make strategic decisions about a company's operations, expansion, and potential profitability. Financial reporting provides comprehensive information about the company's financial health, including revenue, expenses, assets, and liabilities. This data allows business leaders to analyse performance, identify trends, and evaluate the financial impact of different strategic options.

For example, financial reports can highlight profitable areas that could be expanded or areas where costs are high and efficiencies could be sought. By providing a clear picture of the company's financial position, financial reporting enables informed decisions that align with the company's strategic goals and contribute to its long-term success.
 

Secures Investment & Capital

Financial reporting is crucial in attracting funding and investment for business growth. Detailed and accurate financial reports present a clear picture of the company’s financial health, which is essential for potential investors or lenders to assess the company’s health. These reports reveal vital details such as revenue trends, profitability, cash flow status, and the company's asset-to-liability ratio, all of which are key indicators of the company's viability as an investment. 

By demonstrating fiscal responsibility and transparency through consistent financial reporting, businesses can build investor confidence, thereby increasing their chances of securing needed funds for growth and expansion.

Thus, financial reporting bridges companies seeking investment and potential investors, facilitating informed decision-making and fostering financial partnerships.
 

Manages Cashflow

Financial reporting plays a crucial role in cash flow management. Detailed financial reports provide insights into the company's incoming and outgoing funds, enabling business leaders to understand their cash flow patterns effectively. This understanding helps them identify areas where expenses might be trimmed or where there are opportunities for increased revenue, thus optimising cash flow. 

“Cash is king. Get every drop of cash you can get and hold on to it.” - Jack Welch.

Moreover, regular financial reporting allows for ongoing inspection of these cash flows, ensuring discrepancies or potential issues can be identified and addressed promptly. Through effective financial reporting, companies can better manage their cash flow, improve their liquidity, and ultimately strengthen their financial stability.
 

Types of financial reports 

Financial reports are of two types: internal and external. 

Internal financial reports, such as budget vs actual reports, departmental reports, and capital expenditure reports, are primarily used by business leaders and executives. These reports provide detailed information about the company's operations, helping the management team make strategic decisions and manage resources effectively.
 

S/NReportsUsage
1Budget vs Actual ReportCompares budgeted figures against actual results.
2Accounts Receivable and 
Payable Report
Details about the company's debts (money owed to the company and money the company owes), enabling effective debt management.
3Cost Analysis ReportBreaks down the various costs associated with producing the company's products/services.
4Capital Expenditure ReportShows company's investments in property, plant, equipment, and other long-term assets.
5Financial Forecast ReportPredicts company's future financial performance based on current and historical data.
6Productivity ReportShows how effectively a company turns inputs (like labour hours and materials) into outputs (like goods or services).
7Project ReportProvides costs, revenues, and profitability information for specific projects.
8Department ReportProvides financial information about specific departments helping department heads manage their resources effectively.
9Equity Statements Shows changes in the owners' stake in the company due to factors like profits, losses, and dividend payouts.


On the other hand, external financial reports are designed for stakeholders outside the company, such as investors, banks, and government agencies. These reports, which include balance sheets, income statements, and cash flow statements, provide a broad overview of the company's financial performance and health. Investors and financial institutions often use these reports to assess the company's profitability, liquidity, and financial risk.
 

S/NReportsUsage
1Balance SheetProvides a snapshot of the company's assets, liabilities, and shareholders' equity at a specific point in time
2Income StatementShows the company's revenues, costs, and expenses during a particular period to depict the company's profitability
3Cash Flow StatementReveals the company's liquidity and solvency by showing how changes in balance sheet accounts and income affect cash and cash equivalents. 
4Equity Statements Shows all changes to the equity of a company during a given period, including new equity issued, dividends paid, and the impact of profits or losses.
5Notes to AccountsAdds context and explanations to the figures presented in the financial reports, providing a more comprehensive view of the company's financial status.


In both cases, financial reports serve as a valuable tool for decision-making. Internally, they help managers optimise operations and strategically allocate resources. Externally, they help the company comply with the regulatory requirements and provide stakeholders with the transparency needed to assess its financial stability.

 

What do you need for financial reporting?

While Thor wields his mighty hammer, Iron Man dons his Nano Suit, and Captain America relies on his trusty Shield, finance teams require a powerful tool for financial reporting to combat the ever-changing business world.

JustPerform is a cutting-edge platform that seamlessly integrates with over 80 source systems, enabling accurate and timely financial reporting. Its extensive connectivity ensures reliable data, while its user-friendly Excel and web interfaces streamline data collection and processing. With a wide range of built-in reports to cater to diverse business needs, JustPerform enhances productivity by eliminating errors associated with manual report creation.

The JustPerform Financial Consolidation Pro app simplifies external reporting and regulatory compliance with its built-in IFRS/GAAP-compliant scenarios. It promotes data standardisation through a finance user-friendly interface and automates adjustments using a comprehensive business rule library. This streamlined consolidation process enables the production of precise, timely external financial reports that comply with GAAP, IFRS, and other regulatory standards.

Financial reporting serves as an essential guide for businesses, helping them make sound financial decisions, remain compliant with regulations, identify trends & opportunities, build confidence among stakeholders and manage cash-flow efficiently.

Two types of financial reports – Internal & External - serve different purposes. Internal reports are used primarily by business leaders and executives while external reports speak to investors, creditors and other interested parties.

For reliable data collection & precise financial reporting, JustPerform is a cutting edge platform that seamlessly integrates with over 80 source systems. Its specialised Financial Consolidation Pro app simplifies external reporting & regulatory compliance with its built-in IFRS/GAAP-compliant scenarios.

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