The Importance Of Financial Reporting For Your Business

The Importance Of Financial Reporting For Your Business

When you run a business, knowing how to manage your finances is essential so you can be successful – and one of the most important elements of this is financial reporting. These reports give you a summary of your income and outgoings so that you can make changes if necessary, and they allow you to reduce the risk of difficulty in the future. If your cash flow could be better, loans for small business can be helpful, but using reports to identify issues is a great place to start. Read on for more about why they are important. 

What do we mean by financial reporting? 

Financial reporting can be described as the use of financial statements to show how a company is performing financially over time – whether that’s over a month or a year. It basically shows business owners where their money is going, and how much of it they have coming in with revenue and profit – from here, they can then make informed decisions about how to handle finances going forwards. It can also be important if you are looking to get financial help in the form of a loan. 

Examples of financial statements 

If you’re a new business owner, or you’re ready to get stuck into reporting as a way of managing your finances, here are a few examples of financial statements that you’ll need to be aware of: 

  • Income statement: This is also known as a profit and loss statement. It combines your revenue, profits, and expenses. It is a document that can help you to determine your net income. 
  • Balance sheet: This can help give businesses a snapshot of their finances – it reports assets, liabilities (all financial obligations), and equity. 
  • Cash flow statement: This reports how much money a business has coming in and going out, it shows how a business manages cash and expenses. 

Why is it important? 

When you run your own business, no matter the size, or how long you’ve been trading, financial reporting is essential, and it can help your company to become successful in more ways than one. Generally, it can make your life easier when it comes to money management. Here are a few reasons why you should stay up to date with financial reports. 

Improve your decisions

Having an in-depth look at your business’s finances from all angles means that you can make better decisions. Reports can help you to identify how much money you have coming in from revenue, and how much you have outgoing in terms of paying suppliers, bills, and staff, and allows you to forecast how your finances are going to look over the next few months, or even years. Making a forecast for your finances means that you will be able to identify any potential issues that your business might face, like an increase in the price of materials that you need to run your business – and from this, you can then make changes to the price of your product to negate any losses. Making sure that you keep your reporting up to date allows you to deal with potential issues before they take place. 

Manage cash flow 

Your cash flow plays a crucial part in your business, whether you’re a start-up or an established company. The amount of money that you have coming into your business can help you to pay your bills, and suppliers and help you to manage any other obligations that you need to pay for. Financial reporting allows you to see how much money you have coming in, and how much you are paying in outgoings, which is crucial when it comes to working out whether you’re making a profit. If you have more outgoing than coming in – you would need to take action. 

Manage outstanding debt 

The likelihood is that you may have had to take out some form of finance to help your business grow or to give your cash flow a boost – reporting can make it easier for you when it comes to managing your debt. It allows you to see how much money you have left over to go towards debt payments. If your income has increased, you may be able to put more towards paying off your debts than you need to, which means you will be able to pay them off sooner, freeing up your cash flow further. Reporting also means that you can have a regular overview of your outstanding credit, and how much you have left to pay off. 

 Identify trends 

Your reports will allow you to identify trends throughout the year which you can use to your advantage. Similar to forecasting, you will be able to look back on previous years for an idea of when you may have periods of increased profit, so you can buy more stock, or prepare for more customers. You will also be able to estimate when you may have times of lower income, which means you can prepare accordingly, by making unnecessary cuts to benefit your cash flow. Reports allow you to prepare for various peaks and troughs throughout the year, so you won’t be caught off guard when change takes place. 

Leave a Reply

Your email address will not be published. Required fields are marked *