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Strategies for Improving Financial Reporting and Analysis for your Business

Financial Planning and Analysis (FP&A) for Small Businesses

We know that 82% of businesses fail due to poor financial management. Small business owners need a process to analyze financial statements, and many factors must be considered. Understanding your business’s financial reporting and analysis procedure is critical for making the right decisions.

Financial Analysis and Planning (FP&A) helps startups and growing businesses navigate their uncertain journey. With accurate accounting and reporting, the finance team can uncover data-driven insights to help management make swift changes or tweaks.

For example, regularly conducting variance analysis of budget to actual figures can help reallocate budgets mid-cycle.

Maximizing cash flow is critical to balance sheet growth and operational performance. Without the proper financial management tools and resources, your business will never unleash its growth potential.

How to improve financial reporting processes

To improve your financial reporting process, you need to understand your current situation and the steps you take to get there. You can do this by:

  • Understanding the current state of your reporting system. The most effective way of improving any process is by carefully analyzing its strengths and weaknesses. You must know what your current reporting system looks like before making changes. Look at every aspect, from how data is collected to how information is presented in reports or presentations; don't forget about things like time spent on manual processes, such as data entry or formatting documents.

  • Improving the efficiency and effectiveness of each step along this chain by using technology where appropriate (and not just because it's cool). Knowing which tools will make your job easier means being able to choose wisely when purchasing new software - don't just buy whatever comes up first in an online search engine result. If possible, seek advice from experts who've already been through similar processes themselves - they'll be able to tell whether certain features are worth paying extra money for because they're helpful rather than just being marketed as such (which happens too often).

  • Research to see what competitors are doing. Also, locating industry standards can help you understand what is normal.

What is the most important factor in financial statement analysis?

The most important factor in financial statement analysis is understanding the business. If you are unfamiliar with the industry and its operations, you will have difficulty analyzing any company's financial statements. Before making any conclusions about its health or success, you must also understand what each number on the income statement means. Accordingly, understanding industry benchmarks and current market performance will help you assess current health relative to your firm.

Understanding accounting principles is another critical skill for analyzing financial statements. Accounting standards vary from country to country and even within regions of one country; therefore, it helps if you know which accounting standards apply at your firm's location to better evaluate its numbers against those standards (and vice versa).

What are financial analysis techniques?

Financial ratios can be used to gauge the effectiveness of a company's management and to compare it with other businesses in its industry. The most common types of financial ratios include liquidity ratios, market value ratios, activity ratios, profitability ratios, and efficiency ratios. FP&A helps you identify and track your business's key drivers and provide insight into how well those drivers perform.

  • Liquidity Ratio: demonstrates your ability to pay off financial obligations with current assets that are easily converted to cash.

  • Market Value Ratio: used with publicly-traded company stock to assess current share price

  • Activity (Efficiency) Ratio: measures how efficiently assets are converted into cash

  • Profitability Ratio: demonstrates how much profit is generated compared to expenses, equity, or assets

How can financial statement analysis be improved?

Understand your financial reporting and analysis process

The first step in improving your financial reporting and analysis process is understanding how it works. You need to know where your business excels, where it could use improvement, and what you need to do better.

  • Understand the current financial reporting and analysis process. This includes knowing what data is collected, how it's measured, who collects the data and when they collect it (e.g., monthly or quarterly), how long after collecting before this information gets into your hands as a manager or owner of the company (and whether that's too long), if any gaps between collection points could reduce accuracy/quality of results if not filled in by hand later on downstream.

Improve your reporting system

The first step to improving your reporting system is to assess the current one. Several factors can be considered when evaluating your reporting system:

  • Efficiency: How easy is it for employees to use? Are there any processes in place that are time-consuming or inefficient? Can these be simplified or automated?

  • User-friendliness: Is it easy for non-technical users (like managers) to understand what's going on with their data and make decisions based on it? If not, how can we make things clearer without sacrificing accuracy or security?

  • Reliability: How often does something break down, who fixes the problem when it does, and how long does this take--and then how long do they take before they get back up again? Are there any elements of redundancy built into our system so that if one part fails, another will pick up where it left off instead of causing downtime across multiple departments simultaneously, which would create chaos within an organization like yours as well as inconvenience customers who rely on being able to access information quickly through various channels such as web browsers rather than waiting weeks until someone figures out how much coffee needs refilling every morning before starting their shift because otherwise, people might start losing patience while trying

Get advice from experts

If you are not an expert in financial matters, it's important to consult with someone who is. Many professionals can help you get the most out of your data and analysis.

  • Work with a Fractional CFO. A financial executive can help combine the strengths of your CPA firm and provide a forward-looking analysis. If your business is ready to scale, work with a CFO. This will save you time and money.

  • Consult a financial advisor. A certified financial planner (CFP) is trained in all aspects of personal finance, including investment planning, retirement planning, and tax management. They may also have experience working with small businesses or nonprofits on their accounting needs.

  • Consult a financial analyst/manager/expert/consultant. These professionals often specialize in specific industries, such as healthcare or manufacturing so they know exactly what information needs to be reported for those industries' unique regulatory requirements and reporting formats (e.g., IFRS vs GAAP).

What to do next?

If your small business needs help with financial planning, our team is ready to provide a free consultation. Do not wait any longer to keep reacting as problems come up in your business. Develop the infrastructure to manage your financials in real-time with a fractional CFO.

Contact Westport Business Management today for your free consultation.

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