A business organisation is always in need to constantly improve and get better at all times. This is to ensure that they always stay on top and that they are always ahead of the competitors. However, some people might think that the only way to do that is to earn more money by hiring more people and going out there to sell more product or services. But, sometimes there are things that you can fix in the company as well.
Starting a business is not easy. There are so many things to worry about like hiring, business strategy and the most scary of them all – finances! The finance department is the backbone of the company and is the greatest indicator of all to show you if you are making money or not. Those numbers reported by your finance team should be the main results you look at at the end of every month to see if you’re making money or losing money.
Now, if this is your first company or if you are not the ones usually handling the finance in the company, we will first showcase the 3 main components of a financial report. This way, you will gain insight as to how the report should look like and from there, you can begin to understand how to read it and extract the most important information from it.
The balance sheet is basically a statement of the assets, liabilities and the capital of your organisation or business at that particular time. This balance sheet allows you to have a birds eye view on all the most important things in the company.
In the balance sheet you also have 3 more sections. These sections are :
A) Your Assets
Assets are known to be tangible or intangible and it is controlled and used by the company knowing that it would have a future benefit. Assets are things like property, company cars or it could also be the furniture in your office. It could also be shares or investments made by the company as well. The are basically resources that are beneficial to the financial health of the business.
Fixed assets can also include things like buildings and equipment. Patents, trademarks and copyright materials are the intangible assets your company might have. Despite not being physical, they still cost a lot of money and will bring benefit to the company in the long run.
B) The Liabilities
So this is sometimes known as the opposite of assets as they are basically the debts or legal obligations that the business might have. Usually these debts and liabilities will arise from the course of the business, so do not worry as they are usually collected over a period of time. It will not be an immediate slap in the face of liabilities once you set up shop.
Liabilities will also include simpler things likes wages, rent, vendor payments or mortgages for property. Some liabilities like salaries and wages are more short term but there are also some liabilities that are much more long term like mortgages or equity shares.
C) Owner’s Equity
This is the remainder of the company’s assets or shares or equity once all the liabilities have been minused off. This is basically a sum of money that can be divided amongst the shareholders. The best ways to increase this equity is to either gain more profits in the long run or increase the number of investors in your company!
This statement is one that many people fear. The only reason being is that this is the sheet that will make or break every director meeting. It is a very clear and transparent statement that will show you how the company is doing in its truest sense.
A profit and loss statement is usually created over time. So do not expect one made for you every week. It is usually done quarterly or every half-yearly. The main components in the profit and loss statement are :
A) Expenses
Expenses are very important to be put up first so that you know exactly what you’re spending on and where the money is going. This is the outflow of cash or assets that run your day-to-day business. This is where the typical expenses of the company lies like wages, salaries, rent, utilities and perhaps maintenance fees.
B) Revenues
This is where the green comes in. This is basically the amount of cash that your company receives during a specific time through the sale of your goods or services. Basically, this is the money you receive for the output of your business.
C) Loses
When your company suffers a loss, this loss means that it is the decrease in your equity due to multiple different types of activities or transactions.
Example of A Cash Flow Statement
Picture Credits : http://www.fawnmag.com/13853dbzwef/WaZNQz13855/
Like the picture above states, a cash flow statement is basically a summary of the actual or projected inflows and outflows of cash in your company over a period of time. The cash flow statement usually shows off the liquidity of the company’s assets. This is what you should use for budgeting and business-planning.
At the end of the day, there are so many moving parts not just in a company as a whole but also in a department like the finance department. Understanding all the technicalities of a department as huge as the finance one is not an easy feat.
Especially in Malaysia when now we have a new business reporting system called the Malaysian Business Reporting System which will be the new way all businesses will have to report their finances at the end of the year.
This will soon be compulsory for every business but do not worry as SSM has allowed for workshops to be run so that your team can get up to speed with this new system.
To register for the workshop with the people who actually developed this system alongside the Malaysian government, click this link to register today!
With the advancement of technology and the betterment of procedures everyday at the workplace, it comes as no surprise that all reporting systems in the office will also become better with time.
Despite the fact that most of us might have gone paperless, reports are still a crucial part of a business. No matter how boring and dry they might get, reports will play a huge role in ensuring that everyone has eyes on what’s happening to your business on a daily, weekly or even yearly basis. Without reports, you wouldn’t know if your company is doing good or bad. You would not be able to see what efforts are working and which ones should be axed.
We’ve established the fact that business reporting is important, but let’s get more into detail as to why they are so important to you and your growing business.
When it comes to making decisions that pertain to your business, you need to be sure that you have all the information needed to make that decision. Data and analysis of that data has become a very crucial part of moving your business forward. A lot of this software can be in-built into your entire business system and it will allow you to find out what is happening in your entire ecosystem within a few clicks.
A business report allows the conveyance of information that will assist you in business decision making. For example, a business financial report at the end of the month will tell you how much your overhead cost is, are you in the green or the red? It will also tell you things like your profit and loss margins, where you’re losing the most money and also where you’re making money. You would want to ensure you work more on the ones that make you money instead. Having these reports will allow for better decision making.
When you create business reports, you should ensure that they are objectively aligned with the overall strategy of an organisation. Your Key Performance Indicators (KPIs) should be incorporated into every business report you make. This way you can always look back and look forward to see if your company is heading the right direction. These reports while aligned to your KPIs will also help in deciding corporate strategies on the go.
Every company will always have more than one stakeholder or partner that will sooner or later want to see the information on the business. This is especially important when you want to get funding or investments for your business. A report will help inform them on the current status of your business. It also includes your financial status, your cash flow and your profit and loss statements.
This way, stakeholders and business partners can have a simple view on whatever is happening. You can show them your growth and its a better way to communicate progress. If you are a public company, you are also expected to report your finances at the end of the year or even quarterly for some countries.
As mentioned above, a good business report can and will help you make the right business decisions. These decisions also include things like marketing campaigns and strategies. This helps because when you are trying to create campaigns, you need to know that you’re targeting the right people and that you are getting sufficient ROI (Return of Investments) for your campaigns. The only way you can see this is by linking your business reports to your marketing reports.
Business reports that are made, no matter when they are made will be able to show you and everyone in the company what is going on overall. They are good to highlight problems faced in the company. Making sure it is transparent is essential so that everyone can work towards improving the business. Numbers do not lie and a report like that cannot and should not be contested.
These are just a few of the main reasons why business reporting is crucial to the advancement and improvement of your company. Learn more about year end financial reporting with us here at Formis Training.
