Financial reporting is an imperative part of any business in various industries. As for interior design companies, they usually hire an accountant to deal with their finances. However, the companies can still find issues with their financial reports and accounts.
Financial statements play an important role since they allow your business to get loans, pitch to an investor, and much more. Therefore, if you don't have the right financial statements, something is lacking between you and your accountant. Let's go into the specifics of the financial reporting first.
What are Financial Reports?
Financial reporting gives you a clear picture of your business's finances. If you want to know about the profit or loss your company is making, financial reports can inform you about expenses and other things.
And you don't have to be a financial expert to know about all these reports. Rather, even people with a non-financial background should be aware of certain aspects. As an entrepreneur, you need to know the three key financial reports below.
- Balance Sheet: It is a complete statement that is on the basis of the formula of Assets= Liabilities + Capital. You can learn about the entire holdings of the company, the equity, and other things on the balance sheet.
- Income Statement: It tells you about the income and expenses of the company. You can earn about the gross profit and the net profits and use them to calculate different ratios to measure the company’s productivity.
- Cash flow Statements: As a business owner, you need to know how much money is going in and out of your business. The cash flow statement helps you with that since it tells you about the inflows and the outflows of the money.
These are just the basic financial reports that you should know. You can go ahead and learn more about the different reports. Usually, accountants manage these things. However, there can be a disconnect between the accountant and the financial statements. Let's go over the things lacking and how you can overcome them.
What’s lacking in Your Financial Reports and How Can You Overcome It?
Financial reports might miss the essence that helps you analyze and forecast the company's growth. We address some vital aspects that could be missing from your financial statements and how you can sit with your accountant to resolve them.
Lacks Comparative Data
Sometimes accountants might create a single column financial statement that does not include data from previous years or the competitors. It won't give you a clear idea about the company's progress and how it is doing against the other competitors in the market.
Therefore, you can discuss with your accountant to include a column or create another statement that gives you a comparative analysis. If it is difficult to access the competitor's or your previous year's data, they can compare the actual and the forecasted financial reports and include them in the statements.
Another thing that you can see missing from your financial reports is accuracy. Occasionally, accountants or bookkeepers can miss a transaction or record a figure incorrectly. As a result, it can impact the entire financial report and lead to the hassle of doing accounts reconciliation.
Usually, this problem is due to a lack of training rather than deliberate mistakes. So, you should ask your accountant if they have the expertise in proper revenue and expense recognition before taking them on board. It is best to ask them to develop particular skills to create accurate financial reports.
Unavailability of Ratios or Percentage Calculations
Ratios and percentages make it easy for you to calculate and compare the difference between the previous year's performance and this year's performance. In addition, you can determine the gap between your actual and forecasted expenditure.
The solution to this problem is pretty straightforward. You can ask your accountant to add some crucial ratios that can highlight the company's performance. In addition, you can discuss adding new performance measure indicators to know about the company's progress.
Difficult to Understand
Another point your financial reports may lack is the ease of understanding. The accountant may add too many technical jargons that are difficult for most people to understand. Additionally, they have presented the financial reports in a way that is not engaging enough.
Therefore, the best way to deal with this is to ask you, the accountant, to do the following steps:
- Clearly explain each thing in simple words rather than using technical terms
- Present reports with points and bullets rather than simply using blocks of text
- Explain the discrepancies and tell them to the public in an understandable manner
Fails to Have Cash Flow Forecasts
Most importantly, your financial reports may be missing future cash flow forecasts. Cash flows play a vital role in the business's operations. It helps you estimate the amount of money coming in and going out of your business.
If you don't have the forecast and predictions regarding the inflows and outflows of the money, you can be subject to a liquidity crisis. As a result, you will have to turn to loans with high-interest rates, and that can have a devastating impact on your finances.
So, the solution is to ask your accountant to prepare the following financial reports with the projected figures:
- Balance sheet
- Income Statement
- Cash flow statement
It will allow you to know about projections from early on, and then you can make relevant changes in your cash flow statements depending on the situation.
Financial reports are an integral part of every business, regardless of their size and industry. It helps them determine their business’s current standing. And if it is lacking some crucial things, you might not be able to determine the specifics that are hampering your business growth.
It is why you should sit down with your accountant and discuss the things lacking in your financial reporting. It will help you get a clear picture of the company's finances and help you take appropriate steps to take your business to the next level.
Sign up to our newsletter