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January 19, 2024
Decoding the intricacies of the complex process.
As an entrepreneur, you understand that your business is considered on a high growth trajectory only when measurable, comparable, and accurate figures indicate it.
Financial reporting is one of the most crucial parts of this process. It helps manage the growth of your business, stay on track for your objectives and milestones, and make informed decisions.
This article discusses financial reporting and lists its components and the key benefits.
It is the accounting process for communicating financial information to internal and external stakeholders.
Financial reporting is often achieved by the core financial statements: balance sheet, income statement, and cash flow statement. But it can also come in many other forms, depending on the reader’s information needs.
Financial reporting provides insight into a company’s financial position, cash flows, and operations. It equips external and internal stakeholders in the company with the correct information at the right time to make better-informed decisions.
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Financial reporting demands significant time and effort. Many reports and documents are to be derived from several different departments in a company, as illustrated below:
Midsize firms: Controllers and accounting teams oversee the financial reporting process.
Public companies: CFO, CEO, and external auditors certify information. The investor relations department handles the distribution of information to the public.
Small businesses: The lead accountant or business owner manages financial reporting, often with external accountant support.
Regardless of company size, financial reporting includes:
A critical aspect of financial reporting is timeliness, as even the most accurate report loses value if it is outdated.
Here are four reasons why financial reporting is vital to your business:
Financial reporting is essential because it ensures compliance with applicable regulations and requirements.
A company’s financial story is significant when raising capital through public markets, private investments, or bank loans. External parties and investors rely on financial reports to assess the company’s creditworthiness and operational robustness.
Financial reporting is indispensable to internal company management in planning and forecasting. It is a foundation for analyzing operations, computing cash flow efficiency, or measuring KPIs.
Investors, partners, customers, and suppliers often also use financial reports to form predictive opinions regarding the future performance and viability of the firm.
Financial reporting can be complex, but it’s essential to running a successful business. Though every company has a slightly different system to meet its unique reporting requirements, there’s much in common from business to business.
Want to know more about finance and accounting? Since 2006, Escalon has helped thousands of startups get off the ground with our back-office solutions for accounting, bookkeeping, taxes, HR, payroll, insurance, and recruiting — and we can help yours, too. Talk to an expert today.
This material has been prepared for informational purposes only. Escalon and its affiliates are not providing tax, legal or accounting advice in this article. If you would like to engage with Escalon, please contact us here.
Kanika is an enthusiastic content writer who craves to push the boundaries and explore uncharted territories. With her exceptional writing skills and in-depth knowledge of business-to-business dynamics, she creates compelling narratives that help businesses achieve tangible ROI. When not hunched over the keyboard, you can find her sweating it out in the gym, or indulging in a marathon of adorable movies with her young son.
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