For a company to know their next steps – which are vital to its survival, it must know how it is faring financially. This means tracking the financial performance of the company and whether or not the current state of operations is sustainable. To do this, finance and accounting professionals prepare financial reports both for internal use and for all external legal requirements a company might have.
But what exactly is a company financial report?
An accurate financial report reflects the integrity of your company; it is also the primary document you can show to interested parties - the IRS, shareholders, financial institutions and auditors - as proof of your company’s current financial performance and position.
Read: The Role of Financial Reporting in Corporate Transparency
In contrast, inaccuracies among the major reports (balance sheet, income statement, statement of changes in net worth and statement of cash flow) will put your company’s reputation at stake.
It can also subject your business to fraud and tax issues.
To say that financial reports have an impact on your business is an understatemen. Not only does it have a significant impact, but it also has the capacity to directly affect how your company evolves.
Benefits of Company Financial Reports
Financial reports show actual company growth.
A financial report shows current financial period data and pertinent information that you can cross-reference with your previous records to know how much your company has changed and grown. For SMEs, an accurate report is the best way to convince lenders or interested parties about the benefits of a possible partnership.
Financial reports improve your financial forecast.
Your financial forecast is the key to your future business decisions. It shows expected income and expenses projected through your current financial reports. Inaccuracies in the current reports, therefore, also mean inaccurate forecasts in terms of miscalculated profit and loss statements, balance sheets and cash flow. In a nutshell, an inaccurate financial report defeats the purpose of a financial forecast: to mitigate business risk.
Financial reports keep fraudulent cases at bay.
In the 2012 Global Fraud Study, respondents estimated that they lost 5% of their total revenues due to fraud. There are two types of financial statement fraud: asset/revenue understatements (improper asset valuations, understated revenues, overstated liabilities and expenses, etc.) and asset/revenue overstatements (improper disclosures, fictitious revenues, concealed liabilities and expenses, etc.). Having mentioned that financial statement irregularities could lead to fraudulent cases, an accurate and transparent financial report is your best protection.
Financial reports assert your capabilities as a business owner.
Aside from risks concerning fraud, you could also have another legal risk regarding taxation. After all, errors are also to be expected in your declared tax liabilities due to inaccurate financial reports.
Whether you oversee or take a hands-on approach to your company's finances, an accurate financial report is a reflection of a good company strategy. As you stay updated on the financial health of your company at all times, you can have the upper hand in controlling and taking advantage of its benefits.
By understanding these implications, you get to protect your company while enjoying the advantages of having a clear financial view of your growing company. As a bonus, having an error-free financial statement will earn you the trust of both the regulatory bodies that your company must remain compliant to and current and potential investors as it shows your company’s sustainability and longevity.
Read Next: A Guide on How to Accurately Report Financial Results
Find the Right Partner
We have a wide expertise in handling the numbers of businesses across various industries and broad experience in using top-of-the-line software to help your company manage your finances. Contact us today and we'll help you find the right solution for your needs.
Download our Outsourcing: How to Make it Work guide today and know how we can be your reliable outsourcing partner.
This post was first published on 13 October 2014 and edited 15 September 2023. Edited by: Aly Tagamolila
