Founders and management across the Philippines should be receiving and reviewing comprehensive and accurate financial reports regularly.
Whether the business employs an in-house accountant or an outsourced accounting services provider here in the Philippines, financial reporting is a critical aspect of the overall finance management process.
Unfortunately, the value and importance of financial reporting is often overlooked!
So we have identified below 6 key reasons why the financial reporting process is so fundamental for the success of a business.
If you own, run or manage a business in the Philippines and you wish to receive accurate financial reports on a monthly or quarterly basis, Contact Us and we will show you exactly how CloudCfo can add real value for your business.
Financial Reporting – A Brief Overview
What do we mean exactly when we speak about financial reporting? Depending on the business or individual, financial reports can mean many different things!
At CloudCfo, we strongly believe that founders, management and shareholders, should receive key financial data about their business as regularly as possible.
So, when we speak about financial reporting, we are talking about the full suite of financial reports – the Income Statement, Profit & Loss Account, Cash Flow Statement and Balance Sheet – on a monthly or quarterly basis.
Combined, the above financial information should provide management (and other stakeholders) with a 360 view degree of the financial status of a business – when they need it most!
Owners, founders and managers need the full picture of their finances – not just a few data points! This can only be achieved by receiving the full suite of financial reports as regularly as possible.
So why exactly are financial reports so important for a company? We have identified 6 key reasons – so, check them out below!
1. A Clear Picture of the Company’s Financial Health
First and foremost, a company’s finances are the oxygen that keeps the business alive!
Company management must therefore always know what cash they have in the bank, what monies are owed to creditors, what monies the company is due to receive and what funds the company has for a rainy day.
Management needs to be asking questions and receiving accurate answers on fundamental financial questions. What was the real value of my sales and costs during a period? What are my sales margins? What is the value of assets currently under control of the company? What do I owe my suppliers? Have employee costs risen? Has this financial period been better or worse than the previous financial period?
Financial reporting is the only way to “stitch” all of the above information together and clearly understand how the business is doing from a financial perspective.
Without the full suite of financial reports – Income Statement, P&L Account, Cash Flow Statement, Balance Sheet – management are effectively driving the car blindfolded!
2. Company Performance and Financial Analysis
Financial reports can provide key indicators on the areas where a company is succeeding and where a company could be doing better.
By having accurate and up-to-date financial reports, management can monitor performance in accordance with key performance indicators (KPIs) for each business function or business segment and identify specific areas or business departments that need more attention.
In effect, financial reports and the data they include provide an invaluable deposit of business intelligence.
If company management is not receiving accurate financial reports regularly, they are losing a significant opportunity to leverage important information about their own business to help it grow.
Remember, this information belongs to the company and already exists! What a shame if it isn’t utilized!
It just needs to be presented to management in a way that actually makes sense – i.e. through financial reporting!
3. Informed Strategic and Commercial Decisions
Management will only be in a position to make informed commercial and strategic decisions about the future of a company if they have accurate financial data on which they can rely.
When considering big decisions such as capital expenditure, investment opportunities, office expansion, recruitment budgets, etc – management must take into account all financial data that can impact the company.
For example, it is not sufficient to consider only the Balance Sheet when a company is considering a capital investment – management also needs to understand what cash is coming in and out of the business on a weekly or monthly basis by reviewing the Cash Flow Statement and P&L Account.
Key decisions that can affect a business should be made with the most up-to-date and accurate financial information available. This is a fundamental requirement for ensuring that key decisions are as informed as possible.
It is also the supporting evidence that management can justify their decisions to external stakeholders such as shareholders and investors! Check out our recent article on what investors want to see in a company’s finances!
4. Compliance & Audit
The need for receiving financial reports is not only relevant from a commercial perspective – there are important statutory and compliance requirements to be considered also!
In the Philippines, and indeed in various countries around the world, there is a statutory requirement to file financial statements at the end of each financial year.
These financial statements outline the activities and transactions of the company during the previous financial period.
If financial reports are not prepared and monitored throughout the year, it will be much more difficult for management to prepare and file accurate financial statements at the end of the year with the SEC and the BIR.
In addition, the Philippines tax compliance framework is quite complex and requires companies to file tax returns on a monthly, quarterly and annual basis. In our recent article, we outlined why tax compliance in the Philippines is so complex.
If a company is not generating financial reports on a regular basis, how will management, or indeed the company’s accountants in the Philippines, know how much tax has to be filed?
Shareholders and investors in a company will want to understand exactly how the company is performing.
Sure, the company management team might be able to meet with shareholders and explain how the company is performing. Yet, if there are no financial reports and no data to support the claims of management, it is difficult for investors or shareholders to rely on what management is saying!
A prudent shareholder will want to see the company’s reports for historic periods.
Any business with shareholders who are invested in the future of the company will generally demand to receive financial reports on a monthly basis. In fact, the requirement to generate and present financial reports will usually be an element of the initial Shareholders Agreement.
Check out our recent article which outlines What investors and shareholders want to know about your finances!
Finally, management of a company will always have a duty to act in the best interests of the company and the shareholders. The financial reporting process can help to show shareholders that management are adhering to this duty!
6. Investment and Due Diligence
If, at any stage, a company is seeking to raise investment monies or indeed, apply for a bank loan, the lender or investor will almost always want to first understand the financial status of the business.
They will almost certainly request access to the financial reports of the company over a historic period of time. If the company is unable to produce full financial reports – i.e. Income Statement, Cash Flow Statement, P&L Accounts and a Balance Sheet, this can raise two red flags!
- First, the lender or investor won’t have any financial data to rely on! So how can they make an informed decision on the financial viability of the business?
- Second, if a company is not able to produce historic financial reports, this can be a key indicator that there is an issue of concern with the finances or indeed, the management of the business!
A lack of financial reports for historic periods could be the ultimate downfall of a potential investment deal.
In one of our more recent articles, we identified 4 key questions for owners to consider when selling their Startup or SME – one of these elements is if the business is ready for the due diligence process!
Financial reports are generally one of the most important elements of the due diligence process. So make sure you have your financial reports up-to-date and accurate!
Digital Accounting Services and Bookkeeping Services in the Philippines
Here at CloudCfo, we are not satisfied until our clients are fully updated on the financial status of their business.
We take pride in ensuring that our clients have access to the key financial information which enables them to plan for future growth.
For all of our clients, we provide Income Statements, Profit & Loss Accounts, Cash Flow Statement and Balances Sheets on either a monthly or quarterly basis. You decide what’s best for you!