We can’t decide what’s more daunting, starting your own business, or dealing with all the admin. With so much to think about, it’s easy to get lost and lose focus, which is why today’s topic is about financial reporting.
Sifting through your financial data might not be anyone’s idea of a good time, but this information can be extremely valuable. We’ll look at what financial reports are, if you need to use them, and why they might be beneficial to you and your business.
Do I have to create financial reports for my business?
Truth be told, creating financial reports isn’t mandatory, unless you have investors, lenders, or shareholders that you need to keep up to date. Nevertheless, they’re a very useful tool for managing your business and keeping everything on track with valuable insight.
All the joys of having a magic mirror, without having to belt out ‘mirror, mirror on the wall’ to find out how your cashflow is looking.
What is financial reporting for?
Financial reporting gives you a snapshot of your business’s performance over a specific period of time. These reports can be useful in lots of different ways, such as attracting prospective investors, or as part of a loan application.
The financial insight they provide can also help you make much more effective business decisions, and show you things you may not have even known or realised about your business. This means no scary surprises moving forward!
How can financial reporting help my business?
As well as keeping everyone involved in the business up to date with the latest figures, creating reports from your financial data also helps you to manage operations and make plans for the future.
See what’s working within your business (and what isn’t)
Your financial reports show how much the business earns, what it spends, on what, and when. This can help you identify what’s working particularly well, such as a product or service which doesn’t cost you a lot, but which generates a steady income.
Identify what changes you can make
As well as spotting what is working, looking at your financial reporting helps you to identify which products or services are slowing your business down. This isn’t all bad news! The sooner you begin to spot these trends, the faster you can resolve the issue and get things back on track.
Tracking this sort of information will help you avoid spending time, money (or both) on the wrong things, such as jobs for clients who never pay on time, or subscriptions that you never really use. This helps you focus on making more of a profit, putting your money where it matters.
Looking at your financial reports makes it easier for you to analyse whether your business is meeting the targets you want it to. And, if it isn’t, analysing the finances can help you decide what changes to make in order for those targets to be more achievable.
For instance, if sales are high but profits are low, do you need to cut costs, change the products or services you offer, or increase your prices? Looking at your figures will help you find the answer!
Manage your cashflow effectively
Managing your cashflow (quite literally the flow of cash in and out of your business) can help you make sure you have enough money to pay your bills, at the right time.
It will help you make decisions about what your business can afford to do, and when. After all, none of us want to use our new laptop to read emails from angry suppliers following up missed payments.
Send vital information to investors or lenders
Having financial reports available is crucial if you need to manage the relationship you have with current investors to keep them up to date, or to attract new investors who will want to understand how well your business is performing before deciding if they want to get involved.
You might also be asked to submit your financial reports if you’re applying for loans or grants. Like investors, lenders basically want to see how likely they are to get their money back, so looking at your current performance and forecasts for the future helps them to assess this.
How do I create a financial report?
Now if you’re not an accountant then the idea of creating and reviewing financial reports probably brings to mind all sorts of scary thoughts. The more you get into the habit of it though, the less daunting it becomes.
The good news is that if you use bookkeeping software, then lots of providers include reporting tools so you don’t have to start from scratch. The software will use the bookkeeping data that you enter to produce different types of report on demand. Just make sure you keep your entries up to date, so you’re always making business decisions that are bang on the money, literally!
What types of financial reports are there?
There are different types of reports depending on what you need, so we’ve listed the ones that are usually helpful on a day-to-day basis.
| Types of reports | What they do: |
| Balance Sheet | This shows an overview of your business’s financial balances. It looks at your assets, liabilities, and shareholders’ equity in real-time. |
| Profit and loss statement | This report shows you whether your business is making a profit or loss at any given time. It can be used to identify how you can improve (if you need to) moving forward. |
| Cash flow statement | See what comes in and goes out of your business, and when, so you can identify trends, and get the timing right on any decisions you make. |
| Payables and receivables | The last thing you want to do is annoy your suppliers or miss out on what you’re owed. This report helps you view any unpaid invoices either to suppliers or from customers, so you can keep on top of things. Then you can decide whether to give them a polite chase or a hard nudge! |
Where do financial statements go?
Your financial reports can help you complete your tax returns, support bank loan applications, and beyond, but they’re just as useful for managing things in-house. Reviewing them regularly is vital to helping you make key business decisions, and at the right time. It’s exciting when you think about it!
Side note: good bookkeeping and financial reports go hand in hand, so always keep that up!
Find more tips and advice for your business on our website, or tap into our guide on hiring the right accountant.
