10 Ways to Elevate Your Financial Reports
First impressions are everything. Your company’s financial statements are sometimes your one chance to tell your story. Accountants are generally great at analyzing data, but they are often not great at communicating the impact of that data. However, weaknesses are simply opportunities to improve. Below is a “Top 10” list of tips to consider when communicating your company’s story.
Have you ever thought, “I would like to share my financials with this group if only it didn’t have the report on X?” Well why not just consider preparing a set of financials specific to that group? The options for different versions of your financials can vary greatly and, if you know your various audiences, you can tailor a version that will provide each with the appropriate amount of information. Balance sheet only financials are standard in some industries and great for things like acquiring equipment financing or qualifying for an account with a new vendor. Often times in these situations, less is more. Full financials that include all statements and disclosures can still be prepared when more information is needed for parties, such as the bank, management or a board of directors.
2. Be Timely
One of the primary purposes of preparing financial statements based on historical data is to allow management to make educated decisions about the company’s future. This is not feasible if financials are not prepared and presented in a timely fashion. Set deadlines every month for specific closing and presentation dates, and stick with them. Additionally, consider including forecasts and budgets for reference.
The sooner we can put these financial results into the hand of decision-makers, the sooner they react accordingly. The ability to create dashboards and analyze real-time data is something every accounting department should be taking advantage of. Compare this to a weather app you have on your phone. You don’t use the app to see what the weather was like yesterday do you? Of course not. And we want to know what the weather is going to be this afternoon.
3. Know the Audience
Remember that not all users of your financial statements are CPAs. Therefore, it is important that you make sure you are clearly defining industry specific terms and only using acronyms after they have been defined in full. For example, Earnings Per Share (EPS). When presenting your financials in person (always an excellent idea when possible), don’t simply note key ratios and move on. Explain how the ratios are calculated and/or why they are important.
4. Supplementary Information
There are times when the traditional balance sheet, income statement, equity, cash flows and notes just don’t paint the whole picture. In these cases, consider adding supplementary information. If you have a report that has become an industry standard or that a third-party user always requests, why not consider including it in the supplementary information? Supplementary information is your opportunity to introduce key financial and non-financial data. If you are in an industry where performance and growth aren’t always measured by an increase in revenue dollars but by some other key metric such as units shipped, pounds produced, gallons pumped or tonnage moved, this is your opportunity to show that data. Supplemental information also allows you to slice and dice the numbers in different ways. Revenues by contract, geography, product line, and/or department are all good examples.
5. Should You Put Together an Annual Report?
To go a step further, an annual report is your chance to translate important data into one report. This goes back to knowing your audience. Creating an annual report could be a good idea if your financials are going out to a large group of people and you won’t have the opportunity to present them in person. This is your opportunity to take advantage of data visualization by incorporating charts, graphs, and elaborating factors that contributed to your financial performance. Maybe gross profits are down this year because you took on a big project that will result in future gains. Tell the readers about it here. This is also a great opportunity to share your future plans. If you are looking to make some big moves in the next year, this is your chance to elaborate on them.
6. Communicating Financials Internally to Staff
This is a balance between transparency and confidentiality. Ultimately, your management team will have to decide at what level and in what detail the financial statements should be shared internally. We are talking about employees on the shop floor here. Using the tools above, you can tailor specific financial packages to different audiences and create a report suitable for each level. Carefully weigh the pros and cons of each piece of information you are including and consider management’s ultimate goals. By empowering employees and having tangible goals, sharing certain aspects of financial statement can lead to increased engagement among employees.
7. Anticipate Questions
It is absolutely key for whomever is presenting the financials on the company’s behalf to understand why every financial statement is included and what the information means. You should be prepared for any questions (good and bad) that come from users unfamiliar with the industry or that maybe that just aren’t well versed in reading financial statements. Play devil’s advocate. Try to read through your financials as if you were a third party. What changes stick out? Where are the wins and losses? What are the near-term risks or issues?
8. Consider Delivery and Presentation
Almost all third-party users are going to prefer an electronic copy of your financials. Even those that accept paper copies are scanning them as soon as they get back to their office. Be sure to consider that when you scan in a paper copy, it is not going to look as finished as a copy that was printed directly to PDF, especially if you have small font. Additionally, if your financial statements include every single account on your trial balance, please stop reading right now and go fix them. Almost all software has a way to “group” like accounts into a single financial statement line item that will make them exponentially easier to read. Even simple things, like consistent margins, fonts, indentations for sub-totals, and appropriate underlining make a world of difference when it comes to the read-ability of the financials.
9. Make It Worthwhile – Not Boring
Choose a presenter that can and will command attention and hold interest. Engage the audience by interjecting non-financial information that is pertinent to the financials, touting your wins and calling out individuals who had a key impact.
10. Spell Check – Enough Said
Conclusion: I know financials statements might not be considered exciting, and they probably won’t ever be called page turners, but the truth is you and your team just put A LOT of work into what those financial statements are sharing. You might as well do that work some justice by telling a good story.
I hope that these tips help in some way. Oh, and one quick final note: Make sure you keep your story in the non-fiction section.