Lascaux and Chauvet, France. These places are the origin of some of the earliest versions of cave drawings. These drawings depicted humans and animals interacting with each other. Cave drawing is the earliest version of storytelling. Since cave drawings, tools for storytelling have developed and improved greatly. These days, we use tools such as pictures, books, blogs, presentations, podcasts, and even ECGs (the line graphs that show heart activity). Like early civilians, businesses need a tool to tell their story as well – and that tool is financial reporting.
Financial reporting is the process of documenting and communicating financial activities and performance over specific periods.
It tells a story.
All businesses have a story to tell, and each for a different purpose. Some are to encourage people to work for you, some are to persuade investors to buy into your vision, and some will be to inform the government about what you are busy with. As multifaceted as your business is, so is financial reporting and what you can do with it. Annual financial statements, profitability reporting, cash flow forecasts, and budgets – all fall under the umbrella of financial reporting. For business owners, words aren’t enough to paint their business’ picture. You need financial reporting.
Financial reporting tells a story (the what) to enable decision-making (the why).
Business owners need to make decisions about the future of their business. The revenue service needs to decide whether a business is tax-compliant. Investors and funders need to decide whether they will be investing in a certain business. Financial reporting is essential for growing businesses (growing in people, revenue, or impact), and that is where accurate financial reporting comes in.
The term ‘accurate’ alludes to the trustworthiness of the data reported on. In IT, there is a term called GIGO – Garbage In, Garbage Out. It implies that the output of a system depends on the input it receives. There are robust and advanced systems for financial reporting such as Syft, Reach Reporting, and Fathom. These systems raise the bar for financial data visualisation, but pretty bar graphs accomplish nothing without trustworthy and reliable data to support it. It is dangerous to make decisions based on unreliable accounting data. Getting bookkeeping and accounting data correct takes a hands-on approach. It takes constant time and attention, but to make sure that the reports reflect the true nature of business operations, it is a non-negotiable.
One of our clients came to us about three years ago. Back then, they were running blind on their numbers and, like many small businesses, made their decisions on gut feel. The only real pulse they had on the business was the money flowing in and out of the bank account. Their goal was to exit – but for an exit, you need accurate financial reports that possible investors can rely on. Financial metrics such as profitability, solvency and liquidity were front of mind. After two years of getting their books and reporting in order, they secured a multi-million rand exit! It was not an easy or streamlined process, but if they weren’t able produce useful reports to the possible investors, it would have been “no deal” from the start.
Accurate financial reporting creates order – like a child packing away his toys in the correct boxes after playing with them. It creates clarity that is vital for business owners and their stakeholders. This takes TLC (time, labour, and care) and some financial investment (whether it be through systems, hiring people, or using fractional services). Nevertheless, every business needs to have accurate financial reports.
What story is your business telling?