Robbie holds a BSc in Accounting and Finance from Centenary University, New Jersey. He's worked for banks and private companies alike, including Kering (Gucci, Balenciaga),…
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Accurately reporting your company’s financials will keep you safe from legal troubles and directly boost your business’ success.
Financial reporting and statements are critical for making informed decisions, attracting investors, and, yes, staying compliant.
By understanding the function of financial reporting and the best ways to do it, you’ll be able to produce more accurate financial reports and statements with less effort.
In this article, we cover what financial reporting is, why financial statements are important, and how to go about it the right way.
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Financial reporting is the process of communicating your business’ financial data to stakeholders.
Companies deal with many different types of financial data. Most people are familiar with income, expenses, profits, and losses. But there are others as well:
You don’t need to report every single piece of financial data to your stakeholders—but you should report all the important ones listed above.
Companies report their financials primarily through four financial statements:
Your goal with financial reporting should be to provide your stakeholders with a clear and accurate summary of your business’s financial health.
Accurate financial reporting improves company planning, stakeholder relations, and regulatory compliance.
To enhance your business’ performance in the future, you need to know how it has performed in the past—and how it’s performing now.
If the financial data you’re using to make decisions is inaccurate, you’ll end up making the wrong decisions. For example:
On the other hand, if your financial reporting is accurate, you’ll be able to put proper spending controls in place and use all of your spare cash to invest as you see fit. Ultimately, accurate financial reporting greatly increases your ability to make well-informed decisions for your business’s future.
A stakeholder is anyone whose financial future depends on your business. Stakeholders can be customers, employees, suppliers, or even creditors—but the most important stakeholders for financial reporting are investors.
Accurate financial reporting allows current investors to decide between selling, holding, or purchasing more of your business’ stock. It also helps potential investors decide whether or not they want to take the plunge.
In any case, consistently accurate financial reporting increases all stakeholders’ confidence in your business. This makes them more likely to invest, more willing to offer loans, or even more likely to apply for a job.
For publicly held companies, financial reporting is strictly regulated and subject to yearly audits. This is to protect stakeholders from company fraud. If any inaccuracies are found, there could be serious legal repercussions, such as fines, penalties, or even criminal charges against company executives.
“I’ll get to it later” is the worst way to approach financial reporting.
Before getting specific, simply commit to practicing financial reporting the right way.
Develop your own company-wide best practices and stick to them. Standardize documentation processes, assign specific roles to your employees, and deal with any problems immediately as they arise.
By making these commitments at the outset, you’ll save yourself from a host of unnecessary problems down the line.
Choose an accounting software that fits your business’ size and industry. FreshBooks, Oracle NetSuite, and Sage are some of our favorite accounting software solutions.
Nearly all accounting software in 2024 contains features that can save remarkable amounts of time and greatly improve accuracy—but not everyone knows about them.
Whenever your business receives a receipt for anything, digitally scan it and save it in your accounting software. Come up with a consistent naming convention, such as “Receipt_Date_Vendor_Amount.” Adhere to this convention for every receipt your business receives.
Digital storage is important but not sufficient. You should also physically file every receipt in a dedicated folder. Each vendor should have a separate folder, with sub-folders labeled by month and year.
If you wait weeks or months before recording your business transactions, you’ll be much more likely to rush through the backlog and make avoidable errors. That’s why you should block out a portion of every weekday for bookkeeping.
Use your accounting software’s real-time bank feed feature to examine and categorize every income or expense item that comes in. For expenses that come with physical receipts, do a quick spot-check to make sure the amounts in the software and on the receipts are the same.
No matter how careful you are when bookkeeping, mistakes will happen. Set aside a day per week for an informal review of your bank accounts.
Start with one account and compare the balance on your bank statement with your accounting software. If the totals match, it’s very unlikely you have an error. If the totals don’t match, immediately investigate why—even if the difference is tiny. Small reconciliation differences are often caused by huge errors.
In addition to weekly reviews, perform a formal bank reconciliation on the first weekday of every month.
Here are some tips on what might be causing discrepancies and how to resolve them:
Again, it’s vital to reconcile your accounts every month. The longer you wait, the more these discrepancies will accumulate, making the mess harder to sort out with time.
Improper employee expense reporting is one of the easiest issues to resolve but one of the most overlooked.
Send out an expense report template from your accounting software to all employees, and require they each save their own copy. Ensure every employee fills out the report, with receipts attached, within a week of incurring an expense.
Make sure each expense report includes:
Accounting standards are always changing. For most small businesses, these changes don’t matter too much. But for larger companies—especially publicly held ones—it’s a different story.
To stay updated, find the official website of the accounting standards board in your country and subscribe to its email list. The board will send routine emails with relevant updates to the accounting code.
If your business is growing rapidly and you’re overwhelmed by all the work, consider hiring an accountant. This enables you to outsource the complex responsibilities to a specialist who already knows the ins and outs of the financial reporting process.
Financial reporting means communicating your financial data to your stakeholders. It’s primarily accomplished using the four main financial statements: the balance sheet, income statement, cash flow statement, and statement of shareholders’ equity.
By following the best practices laid out in this article, your business will be able to report its financials with more accuracy and efficiency, resulting in better planning, improved stakeholder relations, and compliance with the law.
For more details on how you can make the most of financial statements as a stakeholder, check out our article on how to read financial statements.
The best way to ensure accurate financial statements is to develop company-wide best practices, such as using accounting software that automates time-consuming processes. You should also save your receipts, bookkeep every day, perform regular bank reconciliations, and set rigid company-wide rules for expense reporting.
For small businesses and privately held companies, incorrect financial statements will cause annoyance and distrust among shareholders. For publicly held companies, inaccurate reporting could result in jail time, depending on the nature and intent of the errors.
Technically speaking, financial statements are mandatory for publicly held companies and optional for privately held companies. That said, they’re so helpful for internal company planning that nearly every sizable business puts out financial statements on an annual and monthly basis.
Robbie holds a BSc in Accounting and Finance from Centenary University, New Jersey. He's worked for banks and private companies alike, including Kering (Gucci, Balenciaga), focusing on financial reporting, account reconciliation, and complex accrual analysis. An avid explorer and jack of all trades, Robbie's garnered experience in luxury hospitality, carpentry and construction, and is now backpacking solo around the world.
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