Good financial reporting can help a business track what is really important for profitability and guide good decision-making for the future. Many small businesses struggle to really take full advantage of their financial reporting. However, let’s look at five tips that could really make the difference in whether your financial reports just tick boxes or truly help drive growth.
IDENTIFY KEY BUSINESS DRIVERS
Standard reports will provide you with standard outputs, but each individual industry and each individual business will have its own key business drivers, and you want to ensure that your financial reporting provides useful information about those drivers.
Common business drivers can include:
Conversion rate of web traffic
Production rate for manufacturing
Effectiveness of salespeople
Efficiency rates and downtime
Fixed costs like rent and salaries
Your business will have specific drivers that determine profitability and other measures of success, and you will want your financial reporting to describe those rather than just the typical output of standard financial reports.
OPTIMIZE YOUR CHART OF ACCOUNTS
Most accounting software will help you set up a Chart of Accounts and populate it with things like Assets, Liabilities, Cost of Goods Sold, and expenses, but it usually organizes those things from an accountant’s perspective with Generally Accepted Accounting Principles and the IRS in mind. But GAAP is not designed to help understand your business’s performance; it is designed to help accountants.
Management accounting, on the other hand, is designed to inform management about things that will help them understand and improve the business. A Chart of Accounts designed from a management accounting perspective allows you to track the information that you need. Your accountants have software to convert that information to GAAP, so don’t worry about them.
When you optimize your Chart of Accounts for your business management needs, you will be able to generate reports that matter to you and develop insights and help drive your business forward.
The information a business needs to keep track of can seem overwhelming, but the more detail you record and track, the more accurate – and therefore more valuable – your financial reports can be.
Keeping track of every little detail can be daunting and time-consuming, but technology keeps improving and making it easier to do so. Many apps now provide the ability to upload electronic receipts, invoices, and a myriad of other details. And when you are still dealing with physical documentation, there are apps to easily scan it and then use artificial intelligence to read it, interpret it, and classify it for storage and analysis.
By using the latest technology to keep track of everything, your reports will be more accurate, ensuring the management decisions you make with them will be better informed.
USE DATA VISUALIZATION TO DELIVER INSIGHTS
Financial reports that simply deliver numbers on a page are okay, but applying data visualization to the numbers provides far greater value for management teams. The explosion of big data and the development of visualization and analytical tools to interpret it continues to filter down to small businesses via software and apps.
Using these ever-more-clever visual analysis tools, you can help your team:
Absorb information more quickly
Make the data more memorable
Identify trends, patterns and outliers that could otherwise be missed
Applying the latest visualization tools to your financial reporting can make a big difference in how effectively management is able to interpret and take advantage of the information.
AUTOMATE AS MUCH AS POSSIBLE
New technology is also making automation of repetitive tasks more and more accessible to small businesses.
Automation has two important impacts on improving financial reporting:
It reduces manual errors. Even experienced teams are made up of humans who make mistakes, and small mistakes in entry can add up to big mistakes on large-scale financial reports. By using the newest technology to automate as much as possible, you can minimize those errors and ensure your financial reporting is as accurate as possible, leading to better decision making.
It enables information to be entered quickly, often in real time, meaning that the data that is going into your financial reports is as up to date as possible, and your reports are not based on partial or old information.
Good financial reporting relies on providing the information that matters for your individual business, and on having the most accurate input possible, in order to make the best management decisions going forward. Implementing these five tips will help you achieve the best financial reporting possible, ensuring you have the best information and tools to maintain and grow your business.
A good financial process outsourcer, such as BKE, can be a big help when implementing these tips. From advice on optimizing your Chart of Accounts to always having the latest technology, a reputable FPO will have the tools and know-how to maximize the impact of your financial reporting.