Best Practices to Master Financial Reporting and Analysis for Your Business

Most of the time, financial reporting can be overwhelming for business owners to benefit from merely due to its sheer data volume and improper implementation. As a result, these important figures just end up being printed numbers in a file instead of powerful insights to fuel business growth. Here are some best practices you should employ to access the full potential of financial reporting for your business:

1. Only Employ the Right Financial Reports

Getting an 80-page financial report does barely anything for a busy CEO to understand their business’s performance. Instead, here are some vital financial reports and statements your financial reporting should provide that can help you access real-time data that can aid in decision-making and strategy development:

• Income Statement: Also known as a profit and loss statement, an income statement deduces a business’s revenue, expenses, profits earned over a particular time, etc. This report is mostly used to track and measure a business’s financial performance.
• Cash Flow Statement: This financial statement outlines a business’s cash inflows and outflows over a particular period, mostly by a month or quarter. It’s mainly used to evaluate how a business is producing and using cash to understand its financial stability.
• Balance Sheet: A balance sheet lists a business’s assets, liabilities, and equity and demonstrates how these elements are collaborating. It’s used to assess a business’s financial strength and its ability to pay off its debts.
• AR Aging Report: Also known as an accounts revival aging report, an AR aging report highlights the time taken by a business to collect payments from its customers. This report is used to organize and manage the accounts receivable process and observe the risk of debt.
• Budget Variance Analysis: Budget variance analysis is a financial tool used to compare a business’s real-time financial performance to its planned or budgeted performance. This analysis highlights the differences and variances between the actual results and the budgeted results.

Ensuring you’re getting the most relevant and appropriate financial reports is a big step in ensuring your business’s financial reporting pays off.

2. Implement the Four C’s of Financial Data

Imagine you need to forecast your business’s next year goals and the data you have at hand only lists your production performance of 5 months ago. To ensure you’re using the full potential of your financial reporting, it’s important to make sure that the data used to develop these reports is timely and accurate. You can use the 4 C’s of good data for this, which includes data that is Correct, Current, Complete, and Consistent.

By implementing this rule in your financial reporting, you can not only produce reports that are reliable and can increase your credibility and reliability as a business owner among the stakeholders, but also prevent any data errors and miscalculations that can result in poor decision-making and costly and failed endeavors.

3. Conduct Performance Analysis and Benchmarking

Another reason why your current financial reporting might be failing you as an insightful tool is due to improper performance analysis and benchmarking. Performance analysis is used in financial reporting to identify areas of strength and weakness and learn how a business’s performance can be improved. This comprises curating financial data, analyzing it, and highlighting its results in a summarized way.

On the other hand, benchmarking is used to compare and contrast a business’s performance, individual operational units, products/services, etc against common industry standards or benchmarks. Conducting benchmarking allows businesses to measure their performance against a metric and identify places that lack further strategic development. This practice can be used to evaluate and track various business elements such as expenses, product/service quality, operational productivity, and even customer satisfaction.

Both of these practices are used together with financial reporting and analysis to provide a comprehensive picture of a business’s overall performance, which helps executives and stakeholders access highly relevant data to make informed decisions regarding their operations and develop sound strategies and goals to improve their production and growth.

4. Optimize Data Governance and Financial Reporting

You can’t expect your business to grow if you keep trying to fit it into processes it already outgrew. Whether your business has developed in the past few years or you’re just on the cusp of a breakthrough, your financial reporting should be optimized according to the latest digital advancements and your requirements to continue to offer its maximum potential. Here are some ways a business can optimize its financial reporting and data governance through technological integration:

• Automated Data Collection: Utilizing financial management software to automate the data collection and entry process can help save time and lower the risk of inaccuracies and errors.
• Cloud-Based Solutions: Investing in cloud-based solutions can help businesses offer streamlined access to financial data regardless of location, making it easier for the finance and accounting departments to access the required data.
• Real-Time Reporting: Using advanced technological solutions can help deliver real-time financial reporting to businesses and help them make swift decisions.
• Data Visualization: Digitally crafted reports can offer businesses financial data presented in a clear and visually helpful way to accelerate the analysis process.

Outsourcing financial reporting services can help businesses access technologically backed financial reporting, which can help them utilize their data more efficiently and streamline their reporting and analysis processes.

5. Establish Reporting and Monitoring Frequency

Consistent monitoring and reporting frequency are essential for accurate financial reporting. This comprises establishing regular intervals for documenting financial transactions on a daily, weekly, or monthly basis and compiling and analyzing them accordingly.

Regular reporting and monitoring allow your financial reporting to always be accurate and offer its maximum help in strategy development and goal setting. It also helps identify the latest industry trends and patterns and can assist in shortlisting areas in your business’s performance that require further improvement.