Managing your company’s finances while inspiring confidence in investors to give you a chance, can be a balancing act. You want to keep your company and staff happy while showing outside shareholders that your business is a good bet. This is where financial reporting becomes important.
Financial reports are collections of key financial documents that indicate how well your company is doing and its projects for the future.
In this article, we’ll be discussing what financial reporting is while making a case for why you need it to grow your business.
What Is Financial Reporting?
Financial reporting is the use of financial statements to indicate how well a business is doing over a specific period of time.
It’s used by management teams to make financial decisions. It also helps investors estimate a company’s stability and profitability.
Financial reporting requires you to have a few different financial documents. This includes an income statement, statement of cash flows, and a balance sheet. Financial reports are public and are usually here for the world to see.
Benefits of Financial Reporting
While it’s easy to see how financial reporting gives investors and business owners a lot of information, does it really benefit them beyond that?
For starters, financial reporting provides insight into the amount, timing, and uncertainty of a company’s cash flow. It also indicates a business’s financial strengths and weaknesses.
It also shows how well a company is doing. How much is your company worth? How effective are your company’s financial tactics?
All of these benefits allow you to make crucial decisions about your company down the line. It also helps investors decide whether your firm is worth putting money into.
The Case for Financial Reporting: Why It’s Important
Reporting your finances doesn’t boil down to a single reason. Here are some key reasons why businesses engage in financial reporting:
The most important reason for financial reporting is that it’s required by law. Accurate financial reporting can reduce a company’s tax burden and ensure their resource aren’t being depleted.
Financial reporting illuminates a company’s assets and outsourced payroll statements. It also shows things like sales, expenses, and revenue. This is key to evaluating how well a business did over a period of time.
Examine Cash Flow
If you’re engaging with investors, the cash flow statement in your financial reporting is crucial. It shows whether a company has enough money to pay for expenses and purchases.
Financial reporting allows business owners to look at their assets and make crucial decisions. Do they purchase more assets or sell off ones that are depreciating in value?
Things Included in Financial Reporting
When preparing a financial report, there are crucial things you need to include. Those documents are as follows:
- Income statement
- Balance sheet
- Statement of cash flows
- Statement of stockholder’s equity
- Quarterly and annual reports to stakeholders
- Issuance of common stock
Leverage Financial Reporting Today
If you want to make informed future decisions while inspiring confidence in your investors, financial reporting is key. Use this article to make the right financial reporting decisions for your company.
For more informative articles on bookkeeping practices and payroll, check out the rest of our blog!