Accurate and detailed financial reporting is the key to a robust business. However, not all businesses get their reporting right. They might omit details, report on the wrong things or fail to report at all.
Financial reporting mistakes can be detrimental to your business, as cash flow optimisation opportunities may be missed, and the profitability of your business may decline.
Here are 5 common accounting reporting mistakes to avoid:
1. Not looking beyond the P&L
A profit and loss statement (P&L) is useful when you want to review your revenue, expenses, profits or losses. However, a P&L will only tell you so much about your business. Without digging deeper, you will only gain a basic understanding of your business’ financial position.
Your P&L won’t tell you about cash flow, the profitability of specific products or services, or incoming sales or expenses. As a result, it’s important to look beyond just the P&L.
2. Not forecasting cash flow
Maintaining cash flow is absolutely essential for your business to remain sustainable. Without sufficient cash coming into the business or with too much cash moving out of the business, you can quickly find you can’t afford to pay your employees or creditors, or cover your expenses.
A cash flow forecast will map out anticipated inflows and outflows of cash by reporting on upcoming sales and expenses. Your forecast will help you assess whether you’ll have enough cash coming in and cash reserves to cover the cash going out.
Your cash flow forecast will inform how much you can afford to spend at any given time and identify any potential cash flow challenges on the horizon which may require action to alleviate, such as cutting costs or boosting sales in that period.
It’s essential that your forecast incorporates both budgeted and actual figures so you can estimate what’s ahead.
3. Not forecasting different scenarios
Business owners need to plan and prepare for a range of scenarios – both good and bad – so that they can be armed with the necessary strategies should change occur.
Mapping out a best case and worst case scenario is a good starting point and will enable you to take action quickly if these situations eventuate.
If business owners do not forecast different scenarios in their financial reports, then they risk being caught off guard when change occurs.
4. Not reporting on profitability correctly
Looking at your P&L can be useful to help you understand your gross and net profit on a monthly and annual basis. However, these financial reports do not tell you the profit margin on specific services or products in detail, and therefore can’t inform any decisions around which products or services to sell.
A more detailed profitability analysis will show you where your greatest profit margins lie and where they’re being squeezed. This will give you insight into where efficiencies can be found, or where products or services can be expanded or halted.
5. Not having a budget
A budget enables you to anticipate set costs including rent, subscription fees, and software which you may pay each month, as well as other costs which come up at random times throughout the year. This may include maintenance costs, stationery and printing costs or the unexpected cost of replacing essential workplace items. Having a budget in place enables you to understand what you can afford to spend each month and prevents you from unnecessary overspending.
Making these common accounting reporting missteps can be problematic for your business, resulting in decreased cash flow and missed opportunities. By simply stepping up your reporting it can make a world of difference to the success of your business.
Looking to enhance your financial reporting? We can help. Keeping Company provides expert accounting, giving you a comprehensive view of your business. Contact us today.
At Keeping Company, we’re not just accountants, we’re business people too. With our counsel, your business can reach its full potential.
We have a team of experts; Cloud Accountants, Business Advisors, Finance Specialists working together and ready to help, contact us today.
For all media enquires please contact Tracy Miller, CMO, Keeping Company 0414 898 452.
The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.