October 23, 2021
These 6 Tips Can Make Financial Statements More Effective

These 6 Tips Can Make Financial Statements More Effective

Not just making financial reports, but how to make your financial reports present true and accurate information. Of course all of that has knowledge, because something without knowledge is useless. In business too, this has become a basic thing that must be done within a certain period. But, sometimes it is still like to be found in the case of small-scale businesses, where they do not do or make good financial reports, only modestly it might even be said not for management decision making.

In addition, small business owners are often late in receiving their financial reports so they are no longer relevant. For entrepreneurs who rely on their businesses to provide a consistent source of income, this is not an acceptable state. A good financial report is an absolute requirement. Because with good and accurate financial reports, the company can see the financial flows that occur, the company’s performance during a certain period, a picture of the company’s condition in a certain period so that it can be used as material for decision making. Can you imagine, what if your financial statements don’t provide good information?

Then, like what and how to make good, accurate and effective financial reports? Check out the following six tips.

Correct system

Usually it is best to use an accrual accounting system rather than a cash system. The accrual system does a better job of matching expenses to income. If you report income and related expenses in different periods, the results can vary in profitability from month to month. The company may show a loss in one month and very profitable in the next. This variation in yield prevents the owner from understanding actual performance. If there are advantages to using cash accounting for taxes, you can still do so when using accrual accounting for management decision making.

Accurate accounting

Here, you must separate the costs directly related to the delivery of your product or service from other costs (sales, administration, and overhead). This will allow you to calculate the gross margin percentage (equal to the difference between revenue and expenses directly related to generating revenue divided by revenue). In general, the gross margin percentage should be relatively stable from period to period. If it fluctuates too frequently or contrasts too much, this could be a sign of problems in your finances or your company.

Good line. by line

In the service business, understanding the profitability of each job / client is very important. Likewise, in a product-based business, it is important to understand the profitability of product lines. We often come across small businesses that have unprofitable clients or product lines and don’t know about them. When you find such a difference, it is usually best to raise your price or stop doing any unprofitable work.

Accountability

Income and / or expenses which are the responsibility of a manager must be divided separately. This makes it easier to hold accountable or when needed at times. Maybe you can separate line items in financial statements, where multiple people have responsibilities until you reach accountability points.

Deadlines

You must have a schedule to receive a financial report, in order to stay in control and not miss the info. When the finance department or bookkeepers say that they cannot send the finance as soon as the allotted time. Do not immediately comply with it, there are other things that can help to keep the financial statements completed at a predetermined time. For example, by increasing human resources or by providing more education, in order to complete financial reports where they can produce good and timely financial reports.

All information available

Input data properly and according to regulations. Find out how to get all the important items reported in a timely manner and cover the month. When the available information is clear, the resulting financial statements will also have good, accurate and accountable information.

How ? Have you carried out from the previous six tips on your financial statements? A good financial report will have many benefits, both internally and externally, therefore produce financial reports that are more useful for your business.

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