Financial statements are an essential part of every business’s success. But business health and success require more than just having financial statements. They need to be deeply understood, accurately prepared, actively used, and appropriately shared. As celebrated investor and financial guru Warren Buffet has stated, “You have to understand accounting and you have to understand the nuances of accounting…how to read and interpret financial statements.” Properly preparing and presenting financial statements requires careful forethought and skill.
What Are Financial Statements
Financial statements are documents that give a complete picture of an enterprise’s financial condition at a point in time. They provide insights into an organization’s performance, operations, cash flow, and overall conditions.
Who Uses Financial Statements
Financial statements are used by many different parties, depending on the business structure, life stage, and size of a business. Users can include management of a company, employees, customers, competitors, investors, investment analysts, lenders, rating agencies, suppliers, and government agencies. Knowing the audience for financial statement use will drive the best way of presenting financial statements.
Why Financial Statements Are Important
Good financial statements provide a way for stakeholders, including investors and creditors, to evaluate a company’s financial condition. Investors need information to know the safety and profitability of their investments. Creditors need to know how effectively their money will be repaid. Management needs this information to guide its decisions and actions that will direct budgeting and growth decisions. Employees need this information to maintain their confidence in the future of the company.
They facilitate better and more informed management decisions about the direction and actions of a company. They provide a means for the operating team to be more precise and effective in their functions, including identifying ways to reduce expenses, enhance profit margins, and boost productivity. They contribute to a trusting relationship with all stakeholders. Investors, for example, look at a company’s revenues, profitability, debts, and cash flow. And they are essential for staying compliant with government rules and to avoid tax problems.
12 Tips for Presenting Financial Statements to Stakeholders
Accurately developing and effectively communicating financial statements are important for every organization to survive and thrive. Here are some tips for presenting financial statements to stakeholders:
- Start by reviewing current reports to determine if they meet stakeholders’ needs. Look at the issues of timeliness, data quality, comprehensiveness, and ease of access.
- Make sure that the reports that are presented focus on what is important to stakeholders. Create reports that are stakeholder-centric versus cookie-cutter reporting.
- Too much analysis can be overwhelming. Be sure that any major changes in the financials are discussed in detail. Create clear and understandable reports.
- Make sure that the data is presented with the conditions of transparency and materiality, and that the reports are customized to the specific audience. Avoid complex jargon and technical terms. Put the information in its proper context.
- Identify and focus on key performance indicators (KPIs).
- Don’t forget to develop an internal communication strategy for financial reporting. That will enable your team to relate business outcomes to their performance.
- Find interesting and compelling ways to accurately present information. That can translate otherwise complex data into more visually appealing, intuitive, understandable, and meaningful information. That can include visual presentations and storytelling, for example.
- Make sure that the data and reporting are aligned strategically with your business objectives and strategies. Use the data to explain the challenges and opportunities facing the business.
- Use benchmark data and provide useful comparisons.
- Be honest in all presentations of your financials.
- Make all reporting consistent and concise.
- Presenting financial statements and information should be done interactively. Use financial reporting to motivate and empower your stakeholders.
Seek Professional Accounting Assistance
Contact Orcutt & Co., based in Milford, OH. We deliver comprehensive financial management for small business owners & individuals, providing strategic solutions that best address client needs and aspirations. Our comprehensive accounting services keep you organized and give you the data you need to make prudent business decisions including bookkeeping, payroll, and taxes.