Financing reporting involves a set of data pulled from various aspects of a company to give a full and fair disclosure of the company’s health. It is a legal requirement for listed companies for tax purposes and also used to maintain transparency among the shareholders. It depicts a clear picture of the company’s finances comprising revenue, expenses, income, capital and cash flow. This in-depth analysis of the company’s finances may not reflect the culture or structure of the company but certainly adds to a company’s success.
Usually, financial reports are pulled on a yearly basis to use as a benchmark performance comparison internally as well as externally to see how the company is performing over the years as well as relative to their competitors. The transparent and deep analysis of the company’s financial health helps the management to fulfill the key performance indicators (KPIs) of the company to achieve their goals.
On the other hand, it is used by stakeholders to decide whether they should invest in the company, how much dividend they expect to receive, what is the company’s cash flow status and whether the company is reliable to meet credit and loan obligations.
Today, many small and big companies use financial reporting software such as AutoCount and BI reporting tools to automate this process of financial reporting in Malaysia more seamlessly. It helps to generate accurate values to give the true picture of the company. This in turn helps the stakeholders to make crucial decisions to run their company.
What are the benefits of financial reporting?
Financial reporting not only helps stakeholders to assess the position of the company but all have several other attributes. It highlights the strengths and weaknesses of the company to help it perform better in the future. Let’s look at some of the key benefits of financial reporting in Malaysia:
1. Improved debt control
Debts can make or break a company’s backbone. If you have too much debt, your company will sink despite making profit. The financial reporting instrument, balance sheet helps you to keep a close eye on your asset to debt ratio. You can use AutoCount Cloud Accounting Software to see your current asset versus current liabilities to check if your company is liquid enough to attain your debts sufficiently.
2. Pattern identification
Yearly financial reporting helps you to assess the company’s performance in every sector. The consistent pattern or trend persistent in a company helps you to find its strengths and weaknesses. You can compare the company’s figures with previous year’s report to see if a particular activity is failing to churn in profit. Then you can cut that activity down to invest in more profitable aspects of your company.
3. Real time tracking
Now, software like AutoCount Cloud Accounting gives you access to real time financial data of your business. You can draw quick reports in every aspect of the company’s financial health to help you identify major roadblocks ahead of time. It can help you to make fast decisions and maintain the company’s fluidity at all times.
4. Liability decision making
Financial reporting draws out all your liabilities. It illustrates your short term and long term liabilities, amount owed to creditors and by how much. It also shows the equity of the company. So, if you want to take more loans to expand the company, you can assess your liabilities position relative to your equity to decide if your company is capable of taking more loans without running into financial troubles. In addition, bank business loan programs will require information on your business’s current financial position. Using software like AutoCount Cloud Accounting enables you to maintain proper accounting records and generate up-to-date financial reports whenever you need them.
5. Compliance with rules and regulations
One of the greatest benefits of financial reporting is that it keeps you in line with the rules and regulations specific to the business, industry and the country you operate. It shows the integrity and accountability of the company to its stakeholders and public as a whole.
What are the top financial reporting challenges facing SMEs?
SMEs are the backbone of Malaysia’s business. But being small and medium enterprises, they often find it difficult to prepare financial reports in an adequate manner because of the following:
1. Lack of resources
Many businesses do not have the monetary capital to invest in expensive software to record their daily financial data. Manual representation of data often lacks the transparency and fairness demanded in financial reporting.
2. Expensive hires
You need a professional accountant to prepare financial reports for your company. Unfortunately, SMEs struggle to pay the competitive salary for good employees who can efficiently pull their financial reports.
3. Tracking data
A company needs a stable and user friendly system to key in daily financial data needed for financial reporting. SMEs often struggle to establish a system where all data is recorded transparently to give a true and fair value of their financial health.
4. Vague understanding of rules and regulations
You have to understand what standards and template to follow to prepare your financial reports. The correct tax regulation and financial standards are often not known by SMEs. Or they are not properly input when preparing the reports.
How does financial reporting work?
Financial reporting assess income, expense, assets, liabilities, profit and loss of the company to give an overall picture of the company’s health in one big snapshot. To capture the whole position of how the company is performing, the financial reporting process involves a set of reports.
One of the most essential reports is the Balance Sheet of the company. This report constructs the financial position of the company in a specific period. The report illustrates the assets and liabilities borne by the company in that point of time. It also shows how much capital or equity the organization has which gives a sense of its going concern status.
The Balance Sheet is one of the key financial reporting instruments for stakeholders to know where a company stands. The assets reflect the foundation of the company. The liabilities, equity and sources of loan reflect whether the company has the financial strength to meet its obligation and run for the long run.
Profit and Loss Report
While Balance Sheet gives one big snapshot of the company, the Profit and Loss Report focuses more on the revenue and expenses over a specific period of time. It helps the stakeholders to see the source from which the company is earning its revenue and the costs involved in deriving that income. Lastly, the profit or loss calculated in the report shows whether the company is making profit or incurring loss.
Cash Flow Statement
Though this report is considered secondary to Balance Sheet and Profit and Loss Reports, it can actually tell you how good the company is for the long run. The Cash Flow Statement shows the money going in and out for operating, investing and financial activities of the business.
If a company has sufficient cash to maintain its operation it means the company is financially liquid to run for the long run. A cash healthy company is often in the good books of creditors and lenders as they know that the company is liquid enough to pay their obligation in time. It also appeases the investors as it presents that the company has liquid capital to invest in profitable ventures.
Statement of Changes in Equity
If you hold shares in the company then this element of the financial reporting process will be of interest to you. It shows the dividends and retained earnings of shareholders and the stock price growth of the company. Existing shareholders use this report to estimate their yearly and long term earning. Potential investors use it as a guide to predict what they can receive from the company if they put their money in it.
All these four sets of reports contribute to the financial reporting process to give you a 360 degree view of a company’s financial health. The reports are prepared according to the standards mandated in the Security Commission of Malaysia (SEC), Generally Accepted Accounting Standards (GAAP) and International Financial Reporting Standards (IFRS) to adhere to the laws and policies specific to each country.
Tips to overcome SME’s financial reporting challenges
These constant financial reporting challenges often cause SMEs to fail in preparing fair financial reports. The best way to attend to all the above challenges is to introduce an automated accounting software. We recommend you to use AutoCount Service which is straightforward and easy to use.
It can record your financial data in real time and help you pull customized reports at any given point. Besides, its multiple packages can help you to choose the one that best suits your budget and your business needs.
The software can single handedly record your sales, purchases, tax information and much more. So, you don’t need to invest in expensive professionals as half of their job can be done by this simple software. All you have to do is choose your affordable AutoCount Cloud Accounting subscription plan and an employee with basic financial knowledge. Then you can prepare financial reporting like a pro and take maximum benefit of the fair and transparent reports generated by the software.
What’s more? AutoCount Cloud Accounting provide a forever FREE plan for company that process less than 100 Invoice or 60 Journal Voucher a year.