As I’m meeting different business owners, there is a difference between the businesses that are thriving and the businesses that are struggling. The common theme in the struggling businesses is that they are not receiving monthly financial reporting. These businesses are the ones that truly don’t understand how their businesses are performing financially. As a result, decisions are made based on gut and feel, assumptions, and speculation as opposed to actual financial data.
On the other hand, we have found that the one common theme with businesses that are thriving is the fact that they receive monthly financial reporting and measure their actual results against budgets and business plans. This not only allows businesses to track how they are doing but also allows them to make changes to their plans to enable growth.
Here Are Three Top Reasons Why Investing in Financial Reporting Is Critical to Businesses:
1.) Informed Business Decisions
Do you know if you’re making money? Do you know whether each product or service you sell is profitable? Financial reporting allows business owners to determine whether or not they are making money and to fully understand the profitability of their business. Consequently, it allows owners and key personnel to make better more informed business decisions without relying on gut and feel.
2.) Tax Planning
One of the most common goals of businesses’ owners I have come across is that they would like to minimize their tax burden. Too often, business owner’s outside CPA is stuck in the weeds working on accounting entries instead of adding more value to businesses by strategies with business owners about the tax implications of certain business decisions. By having monthly financial reporting, you are now in the driver’s seat to work with your outside accountant to understand the tax implications of decisions and to guide your business in the most beneficial direction.
3.) Obtain Lending
Banks and other 3rd parties will need and rely on financial reports to determine if they are willing to lend to you. That lending, in many industries, is critical to business operations as receivables may not be collected for 60-90 days. Consequently, financial reporting, in some cases, may be the most critical tool that keeps your company in business.