You can’t measure what you don’t track, especially when it comes to your finances. And if you don’t know the financial health of your business, it’s likely that you can’t improve it either.
This is where the importance of financial reporting comes in. Through an in-depth report of your financial performance, you can examine how you use your resources and manage your cash flow. When you know your numbers, you can better assess your business performance, minimise risks, and make realistic growth plans.
Why is financial reporting important?
Let’s look at the top three reasons why financial reporting is important to your business:
1. Financial reports are crucial for tax compliance
Financial reports are necessary when you’re complying with your tax obligations.
According to the Australian Taxation Office (ATO), you keep and report enough records to substantiate the business expenses that you claim as tax deductions. You must not use estimates when lodging your tax returns.
If you have well-prepared financial statements, you can use them as proof that you’re paying your fair share of taxes.
2. It provides investors, creditors, and other stakeholders with credible and transparent financial information
Numbers don’t lie. This explains why accounting is considered the language of business.
Your financial reports are an important communication tool for your stakeholders — investors, business partners, creditors, and other stakeholders. It shows them information about how cash flows in and out of your business and if you’re efficient in managing your capital. It’s an effective tool to highlight your company’s financial integrity and build trust with all stakeholders.
3. It guides you in making informed decisions
Financial reporting and analysis allow you to identify trends, track your real-time financial performance, and identify potential challenges. By staying on top of your financial statements, you can make quick and informed business decisions whenever needed.
Aside from these three reasons, financial reports are important because they provide clear insights into the current financial status of your business. For instance, you can use financial reports to measure your company’s assets and liabilities. Once you have an accurate measurement, you can then proceed to plan how you can improve your financial condition.
Keeping accurate financial reports is also handy during the pandemic. Whenever a government grant opens, you can use your financial reports as a basis for grant eligibility. Rather than rushing to gather all relevant information, all you need to do is to pull your reports and start applying, in real-time.
Helping you keep accurate financial reports
Do you have limited time to manage your business records and finish accurate reports in time? ABJ Solutions is here to help. Our team is based in Australia, making us well-informed about the latest ATO updates. We also use accounting and business intelligence tools to streamline our clients’ reporting processes.
If you’re interested to learn more about our services, please feel free to contact us. You can also avail of our free 60-minute financial health check by signing up here.
