Finance reports are essential for businesses because they provide an overview of key financial metrics and data, such as income, expenses, assets, liabilities, and capital. This information is essential to help the stakeholders make informed decisions on spending and investment.
By understanding their financial situation, businesses can make better decisions about allocating their resources and planning for the future. Finance reports also help businesses identify areas of potential cost savings or inefficiencies that can be addressed.
Additionally, finance reports can be used to measure performance over time, which helps businesses determine if they are meeting their goals.
On top of all, finance reports provide important external stakeholders with a snapshot of the company’s financial health, which gives them confidence in investing in or working with the business.
Given the importance of financial reports for a business, it's critical for CFOs to track the right set of financial reports to help the business make intelligent decisions.
So, let's discuss the top reports CFOs should create or at least keep track of:
9 Most Essential Finance Reports
Here we list the most critical financial reports:
1. Income Statement
The income statement, aka P&L statement, reveals the profit and loss of a business over a certain amount of time. Essentially, it adds together all your earnings, revenue, or sales and then subtracts your costs. As a rule of thumb, it would be beneficial to compare the current month, quarter-to-date, and year-to-date to the expected values or figures from the two preceding years.
Although it is generally delivered every quarter, the income statement should be presented each month to drive the best insights. In addition to this, CFOs should get a one-year income statement, which can give an overall understanding of how a company's sales and expenses have fluctuated over the past year.
By having access to your regular income statement, your Owner can observe the general results of your business before the month is over. Normally, expenses tend to fall into similar categories, so if the Owner and CFO look at the income statement a couple of days prior to the end of the month, they should have a good grasp of the money your company is making.
Lastly, it is important to keep an eye on some aspects within the income statement, such as the margins, expenses as a proportion of sales, and EBITDA.
2. Cash Flow Statement
A cash flow statement is a quantitative financial report that summarizes the amount of cash and cash equivalents entering and leaving a company. It provides an overview of a company's ability to generate and use cash.
The insights it can provide to Owners and CFOs include an understanding of their business's overall liquidity, solvency, and financial health. It also helps identify areas where additional funding may be required to meet future obligations or capitalize on opportunities.
The best practices for creating a cash flow statement include:
Start with the beginning balance from the previous period, then add new sources of income such as sales revenues, investments gains, loans received, etc., subtract expenses such as salaries paid, material costs, taxes owed, etc., and make any adjustments such as depreciation or amortization expense.
Make sure all information is accurate before producing the statement. This includes double-checking for accuracy, in addition to properly categorizing different types of inflow/outflow transactions.
Include notes on any non-cash transactions that occurred during the period being reported on. These should be detailed and clearly explain why these entries were made so they can be understood by those reading the statement.
When analyzing a cash flow statement, it's important to look at not only the overall trends but also at specific areas such as operating activities (revenues vs. expenses), investing activities (buying/selling assets), financing activities (borrowing money from creditors) and any other relevant information related to current or future liquidity needs.
A thorough analysis should also compare current results against prior periods to identify potential trends in cash flow movements over time. Additionally, ratios such as operating cash flow per share or return on invested capital can also be used to measure performance relative to industry benchmarks or competitors
3. Working Capital Report
A working capital report helps higher management to measure the company's short-term liquidity. Owners and CFOs use it to understand the current health of their business and make decisions about when to invest in assets, take out loans, and determine strategies for managing cash flow.
The report usually includes a list of current assets (cash, inventory, receivables) and liabilities (short-term debts) with their respective values. A typical working capital report will also include ratios such as the current ratio, collection ratio, and inventory turnover ratio, which can provide further insights into the financial health of the business
The best practices for creating a working capital report are:
2. Estimate future cash flows based on sales forecasts and other relevant information.
3. Monitor accounts receivable closely to ensure that invoices are paid promptly.
4. Monitor accounts payable closely to take advantage of early payment discounts whenever possible.
5. Reduce inventory levels where possible, as it represents idle funds that could be invested elsewhere or used to pay down debt.
6. Maintain adequate liquidity levels to avoid potential cash flow problems due to unexpected expenses or unforeseen circumstances such as a recession or pandemic-related disruption.
When analyzing a working capital report, it's important to look at both the overall trends as well as specific areas such as inventory turnover, accounts receivable days outstanding, accounts payable days outstanding, and any other relevant metrics related to efficiency or impact on liquidity needs over time (e.g profit margins).
You can also compare the ratios against industry standards, competitors, or even your historian to identify any issues that may need attention from management in relation to future planning or strategy implementation decisions
4. Sales Forecast Report
A sales forecast report is a document that helps CFOs and Owners make important working capital decisions by providing them with an estimate of future sales. It is a prediction of how much revenue a company might generate soon based on various factors such as past sales performance, market trends, customer demographics, etc.
To create a sales forecast report:
1. Gather relevant data -
Collect historical data related to past sales performance and financial metrics of the business.
2. Assess current trends -
Analyze current market conditions, customer feedback, and any other industry-specific factors to form an understanding of what might affect future sales performance.
3. Identify potential risks -
Evaluate macroeconomic conditions and identify any potential threats or opportunities that could impact on the company's future success.
4. Create an initial forecast -
Use historical data and insights from market research to predict future sales figures or trends for the next six months or a year.
5. Monitor results -
Track actual results against estimates over time and modify forecasts accordingly based on changes in customer behavior or market trends.
Once you have created the initial forecast, it is important to analyze it to determine whether it is realistic and achievable given current factors such as customer demand and industry competition. CFOs and Owners should use this information to adjust their strategy if needed to ensure maximum profitability for their business in the long run.
5. Budget Variance Analysis Report
A budget variance analysis report is a document used by CFOs and Owners to compare budgeted financial results with actual financial results. This report allows the company to track where their spending is outperforming, and underperforming compared to their budget. It also helps identify any areas of potential cost savings or growth opportunities.
To create this report, gather the needed information, such as the budgeted expenses and revenues and the actual expenses and revenues for each month or quarter. Then, calculate the variance between the two figures by subtracting the actual values from the budgeted values.
Then, analyze each item to understand why there was a difference between what was planned and what occurred. These insights can be used by CFOs and Owners to help make better decisions when it comes to managing finances.
6. Financial Ratios Analysis Report
TA financial ratio analysis report is an analysis of a company's financial performance over time. It is useful for CFOs and Owners as it helps them make decisions that improve the company's financial health. Financial ratios provide insight into different aspects of a company's operations, such as its profitability, liquidity, efficiency, and leverage. This information can be used to compare the company against peers and industry averages to identify areas of strength or weakness.
To create this report, first gather the necessary financial information from the company's financial statements (balance sheet, income statement, etc.).
Next, calculate key ratios that measure different aspects of the company's performance (e.g., return on assets (ROA), current ratio).
Finally, analyze the data and generate conclusions from your findings. This can be done either by hand or through a specialized software program.
The report should include a summary of your findings and any recommended actions or changes to improve the business's financial performance.
7. Break-Even Analysis Report
A break-even analysis report is a tool used by business Owners and financial managers to determine the point at which total revenues equal total costs, aka the "break-even" point.
This report is used to calculate the minimum sales volume or amount of revenue that must be generated to cover all the fixed and variable costs associated with running a business, allowing for profits to be made.
The report can provide OWNERs and CFOs with important insights into their company's financial performance. It can be used to assess if certain products or services are profitable, identify areas where costs need to be cut, and set targets for future growth for more accurate budgeting.
To create a break-even analysis report, one must first identify all the fixed costs associated with running a business – such as rent, salaries, depreciation, and interest expenses. In addition, variable costs – such as raw materials or labor – should also be added to the calculation.
Once this information has been calculated, it can then be analyzed to understand how much sales are necessary for the company to turn a profit. The outcomes can then be used in the decision-making process concerning pricing strategies and cost-cutting initiatives that can improve profitability.
8. Accounts Payable Aging Report
An accounts payable aging report is a document that tracks the amount of money owed to suppliers or vendors over a period of time. This report is commonly used by CFOs and OWNERs to assess and maintain supplier relations.
The report lists each supplier and the amount of money due, as well as how long the payment has been outstanding. The analysis of this data enables decision-makers to identify any issues that may be present with a vendor, such as late payments or payment delays.
To create an accounts payable aging report:
2. Enter this data into an accounting software application like QuickBooks or Excel.
1. Begin by gathering all relevant financial records from the past year, including invoices, bills, and other documents related to vendor payments.
3. Once all the information has been entered, generate a report that lists each vendor's total unpaid amounts and payment due dates.
4. Analyze the report to identify any trends or patterns in terms of late payments or any other potential issues with suppliers.
Analyzing the accounts payable aging report can help CFOs and Owners make informed decisions about which vendors they should prioritize in terms of paying their invoices on time. It can also provide insight into which vendors may need additional attention to ensure timely payments are made in the future.
9. Accounts Receivable Aging Report
An accounts receivable aging report is a tool used by CFOs and Owners to identify and manage unpaid customer invoices. This report provides an overview of the company's outstanding receivables and categorizes them according to how overdue they are. It is used to better understand how long customers are taking to pay, which helps CFOs and Owners improve cash inflow and working capital.
Creating the accounts receivable aging report is relatively straightforward.
The first step is to compile all the invoices that have been sent out to customers but have not yet been paid.
Then these invoices should be divided into categories based on their age: current (0-30 days), 30-60 days overdue, 60-90 days overdue, and 90+ days overdue.
Once this data has been categorized, the total amount for each category can be calculated.
Analyzing the accounts receivable aging report can provide valuable insights into a company's financial health and customer payment behavior. By understanding which categories are particularly high in terms of unpaid invoices—and why—CFOs and Owners can develop strategies for improving cash inflow and working capital management.
For example, suppose there is a high number of 90+ day overdue invoices. In that case, this might indicate that customers are struggling financially or that processes need to be improved in terms of sending out invoices on time or following up with customers who have not yet paid. Taking action on these insights can significantly improve the company's overall financial health in the long run.
Outsource Accounting to Get Better Insights
By outsourcing certain accounting tasks, such as payroll and accounts payable, CFOs can free up resources that can be used to focus on more strategic activities. Maybe an assistant to the CFO can also take care of that.
Outsourcing also allows specialized professionals to provide expertise and advice on complex financial issues. This helps to ensure that all financial information is accurately reported and that any potential errors or discrepancies are identified quickly.
Additionally, outsourcing may reduce costs associated with staff salaries, benefits, training, and other overhead expenses. This efficiency allows companies to allocate more of their resources toward improving their financial health while providing accurate data to key stakeholders.
