The Importance Of Financial Reporting

When we talk about financial reporting, many people associate it with complex reports prepared by large companies, but nothing is further from the truth. It is as important or more essential to carry out financial information in small and medium-sized companies as it is in more extensive and more complex companies.

What is Financial Reporting?

Financial reporting is the process of generating documentation that contains economic-financial information on an organization’s main activities or internal operations. The main objective is to provide a real vision of the company’s current situation with which forecasts can be made, and decisions can be made in the short, medium, and long term. 

Therefore, we are talking about a fundamental and global need that affects all companies, so SMEs also need to have data collection and analysis tools that allow them to carry out reasonable management control in time. And proper shape.

In addition, the financial report must be updated monthly to adequately meet the objectives set out in our annual budget, adapting our actions to the reality of the business at all times.

Principles of Financial Reporting

Financial reporting must meet a series of requirements to be considered a complete and quality tool:

Consolidation:

Financial reporting must gather information from each and every one of the company’s departments, both in actual and budgeted data, and consolidate it in such a way that we can have a comprehensive economic-financial vision of all the organization’s processes.

Dynamism:

For company managers to make strategic decisions quickly, they must analyze and understand the information contained in the report immediately. To do this, it must have indicators, graphs, comparative tables, and other configurations that outline and convert financial information into formats that are easy to understand at first glance.

Automation:

The generation of the reports must be carried out in the most automated way possible and thus avoid errors in the loading and analysis of the data. It is essential to have a management control system that allows us to upload the accounting data each month mechanically and precisely. For this reason, it is necessary to highlight the importance of implementing an appropriate ERP software that will guarantee the superb quality and reliability of financial information.

Internal and external information:

Financial reporting provides information within the company: to the company’s management for planning and making strategic decisions, to those responsible for the different departments on how the various resources and their variations are being used over time and deviations from budget, etc. As well as to provide information to external agents: to auditors for data collection, to financial entities on the banking pool, to shareholders and other interested parties if the company is listed on the stock market, etc.

In conclusion, for our company to meet the objectives established in its business model,  it is essential to have good financial reporting as a critical element for proper management. At the same time, so that the benefits it offers us are fully exploited, it is advisable to invest in Business Intelligence tools that will facilitate and strengthen decision-making and control of the company’s financial activity.