Financial reports are the statements that summarize the vital financial accounting matter of business. The balance sheet, cash flow statement, and income statements are three crucial elements of financial statements. The comprehensive financial reports will give an overview of a company’s financial condition. This blog focuses on the top tips to consider while generating financial reports for an organization.
However, before we move on, let’s understand why financial reports are generated.
The financial statements form the primary sources of information for all the stakeholders. Utilizing these principal statements, stakeholders attempt to examine the profitability and economic position of a business. Therefore, the details from the financial statements and learning regarding the results accomplished by your entity during a specified period of time presents the basis for making decisions. Hence, the primary objective of financial statements is to help users in the decision-making process. Here are stipulations that indicate why financial reports are important for a business:
- It represents the economic means and obligations of a business entity
- Indicates the earning capacity of the business
- Improves the effectiveness of management in utilizing the business resources
- Reveals the potential cash flows, with their amount, timing, and related uncertainties
- Represents the accounting policies and the changes undertaken during the year.
Now, focus on the pro tips while executing the financial reporting for your business.
Tip #1: Accurately forecast sales
Create a spreadsheet predicting your sales for the upcoming years. Set separate sections for different sales lines and columns for every month of the first year and every quarter for consecutive years. Detailed sales forecasts allow companies to make learned business decisions and foretell short-term and long-term performance. Besides, do not forget to assess past sales data, industry-wide comparisons, and economic trends while forecasting the sales via financial reporting.
Tip # 2: Create a budget plan for business expenses
You need to know how much it will cost you actually to make the sales you have anticipated. Consider your fixed costs (i.e., rent, payroll, etc.) and variable costs (i.e., advertising and promotional costs) when creating your budget. Also, estimate the interests and taxes which will consume a significant part of your budget. This budget plan is essential to get an overview of expenses and the additional requirements for business growth.
Tip #3: Generate cash flow statement
The cash flow statement shows physical money moving in and out of your business. You should base the cash flow statement partially on your sales forecasts, balance sheet items, and other assumptions for the better results. An existing business should have past financial statements to use to project their cash flow. New companies should start by projecting a cash flow statement that is broken down into 12 months. Besides, you take advantage of the financial reporting services from the outsourcing service provider firm. They will deliver the most accurate, useful cash flow statements that will help you make the improved, better business decision for your company.
Tip #4: Include projection of net profit
Do not forget to compile the profit and loss statement that details your business’s forecasts for the upcoming years. The details will help you manage sales forecasts, expense projections, and cash flow statements. Net profit is the total margin minus expenses, interest, or taxes.
Tip #5: Explicitly mention assets and liabilities
A financial report should incorporate assets and liabilities that are not in the profits and loss statement and project business’s net worth at the end of a fiscal year. Compile and determine what capital you will have on hand month by month, including accounts receivable, inventory (if you have it), land, buildings, and equipment. Then figure out your liabilities or debts along with accounts payable (money your business owes) and debts from the outstanding loans.
Tip #6: Discover the breakeven point
The breakeven point is when business expenses resemble the sales volume. The income projection will also enable you to obtain this analysis. If your business is viable, your overall revenue should ultimately outperform your overall expenses. This is important information that guides the investor about company growth.
As financial reporting is one of the crucial tasks, it demands expert skills and experience. That’s the reason businesses outsource the financial reporting services to the experienced firm. Often, the outsourcing service provider offers expert accountants assistance to generate financial reports with secured communication.
FinAcc Global is an outsourced accounting service provider in India who offers industry-best accounting and finance outsourcing services for all types of businesses. Connect with us to know more about how we deliver the outsourced accounting services across the globe.