Greetings to you all and welcome to another installment of Accounting Matters. In this issue, we will be exploring financial reporting and its impact on decision-making. This happens to be one of my favorite topics when it comes to issues of financial management. Before I get too excited, it is important to understand what financial reporting is.
Financial reporting is presented in the form of financial reports and is used to provide information for decision making. That said, it is therefore essential to understand what financial reports are. The most commonly known financial report amongst business owners are Annual Financial Statements (AFS) as they are required for funding purposes and compliance. Whilst AFS are an important financial reporting tool as they present the financial position, performance and cashflows of the company, there are several other reports that are valuable for purposes of decision making.
I have noticed that many SMME’s do not take advantage of drilling down to specific classes of transactions/account balances e.g. expenses, income, inventory for purposes of obtaining valuable information that could assist in decision making. For example, a company that sells goods should be generating and analysing inventory reports on a regular basis and using that information to better manage their stock. This would include issues of pricing, costing, stock movement, leakages etc.
There is a world of information to be gathered about your business through proper reporting practices. It should not be seen as an unnecessary time consuming process but rather as an essential part of effective financial management. A business owner who understands the financial activities that drive his/her business ,will always be better equipped to make proper business decisions.
- Monthly Management Accounts
- Expense reports (these can also be broken down into significant items)
- Inventory reports
- Payroll reports
Remember, the effectiveness of reporting/reports is dependent on the accuracy and completeness of your financial recording. If the recording of financial transactions is inaccurate and incomplete there is no way you can rely on your financial reports as this will lead to improper decision making. The information that makes up the above mentioned reports is contained in your general ledger, however, separate reports make the information easier to analyse.
As I have mentioned throughout this series of articles, there are many tools that can assist in generating financial reports. However, it is also important to note that assessing some of the information contained in the reports may require the assistance of a professional. Throughout my 10 years of consulting I have noted the frustration of entrepreneurs when it comes to finance and that is mostly due to lack of information.
I have hosted numerous training sessions on financial management for non financial managers. I can tell you with absolute certainty that with the correct knowledge and tools, the ability to utilise financial information and translate it for purposes of decision making is within everyone’s reach. That’s it for this issue folks, we are heading into the last stretch of the series (3 to go). We are excited to share some more information with you. Until next… Bye for now.