Companies prepare monthly financial reports to monitor their operations closely.
These reports can provide early warning signals to revenue accounts or expenditure accounts that are running higher or lower than expected.
In addition to early warnings, there are many other benefits that are associated with monthly financial reports.
What are these benefits, how can you take advantage of them, and why does your business need a financial report, we have answered all these questions in the coming section of the article.
Managing Cash Flow
Financial Reporting helps to observe the health of the company’s financials by keeping a trail of cash inflows and outflows.
Business owners make or break their decisions while analyzing their cash flows. The Cash Flow Statement consists of operating, investing, and financing information. It reveals your changes in cash and cash equivalents from month to month.
If your cash flow is negative, it means you have more cash going out than coming. Moreover, to deal with the situation, you may decide to get temporary financing like loans or cut expenses.
For example, WorldCom’s market capitalization was 175 billion and this number attracted investors as the cash flows of the company were showing that the company is generating high profits.
Enhancing Working Capital Management
If you’re managing your expenses, accounts payable, or accounts receivable monthly, these processes will help you enhance your liquidity and make informed decisions regarding bad debts.
Working capital gives an idea of how much a company is liable to pay in the short and long term, including inventory shortages, accounts payable, etc.
Such information will help internal and external stakeholders have a broad view of the company’s financial position if it’s thriving or drowning in hefty debts.
Predicting Financial Forecasts & Budget Planning
Financial forecasting is calculated by examining historical data, such as revenue, cash flow, expenses, or sales. Without the monthly financial report, it will be extremely hard to forecast the direction of your business.
Forecasting is an important aspect of the business because it gives businesses an idea of how effectively their strategic planning is implemented and aids them in decision-making regarding hiring, budgeting, and predicting revenue.
If you forecast high-level trends for general planning purposes, you can rely more on broad assumptions than specific details.
However, if your forecast is concerned with a business’s future, such as a pending merger or acquisition, it’s important to be thorough and detailed.
For example, Tesla Inc’s 12-month price forecast is a median target of 305.00, with a zenith of 530.00 and a low estimate of 85.
The average estimate represents a +47.08% increase from the last price of 207.37.
This increase in Tesla’s stock price will help the management to think about expanding and investors to buy more shares to attain a higher dividend yield.
Identifying Trends to Make Better Decisions
If businesses are generating statements on a monthly basis, it will help them observe the trends of their company’s growth or failure.
For instance, if the monthly income statement depicts that the company’s revenue is increasing and the company is making profits, business owners can think about increasing wages, expansion, or hiring more resources.
Moreover, the management will be informed that their approach is successful and decides on how the profit can be used efficiently immediately.
With accessible financial data, you can make informed decisions based on hard numbers rather than just relying on the probability of future success.
Whenever there is a drop in sales, using your financial data, you can individually break different streams of income and optimize your operations where you are lacking. Your financial report can help in dividing different segments of your business and their financial performance.
Furthermore, it can boost the productivity, efficiency, and performance of the company.
Maintaining Business Records
It is mandatory to keep past, present, and future records of your business’s performance and predictions.
The process will not only help you to document the data of your company but also will help the public to develop faith in your company with better transparency while launching your business for IPO.
For instance, if it’s a not-for-profit company like an NGO, the external stakeholders would like to see proof of the money you are using for operations. Moreover, for court purposes, it is important to maintain records.
Before making an investment or extending a loan to a company, investors and lenders will look for certain emphasized performance indicators in its financial statements.
The investors will look at the figures of Sales, Revenue, Gross profit margins, the company’s debt, or the break-even point, etc.
For example, the records of Apple Inc show that it has a market capitalization of $1.1 trillion and revenue of $273.9 billion, so this will allure investors to choose Apple for their secure investment funding.
Tax Liability is determined by analyzing the financial statements. Monthly financial statements will save you time without explaining anything to your CPA.
Moreover, he can easily comply with the taxation laws by looking at your monthly statements and can file taxes for you.
Monthly financial statements may also help your trusted CPA to claim available credits and deductions for your business easily. This can further reduce your tax liabilities and you can save money.
Maintaining Businesses’ Financial Health
Financial reporting is the way to suggest changes for maintaining the financial health of the company and to effectively use the company’s finances in the right direction.
It will also help authorities in determining the loopholes. Furthermore, the activity can help the management to never repeat mistakes where they incurred high losses.
Moreover, Investors prefer companies that can generate higher profits and cash inflows each year.
Recently, Metaverse lost $1.4 billion but people are still investing in it because the management has predicted through financial data and practices that the metaverse will generate millions of profits in the future.
Monthly Financial Reports You May Need for Your Business
There is a range of financial reports that you may generate for your business depending upon the niche you operate in, however, following are some of the popular monthly financial reports that businesses use:
- Income statement
- Balance sheet
- Cash flow statement
- Working capital report
- Sales analysis report
- Actual and Budgeted Report
Businesses must develop the practice of making monthly financial reports to improve their company’s performance in every way possible and become harmless in a red ocean of markets.
It is always recommended to talk with an accountant who spent years working on these financial reports. What you will achieve in a year, he may get you in months. It saves time and money!