As the backbone of any business, finance is a crucial element that determines the success of a company. To ensure that your company is successful, you need to develop a reliable process that monitors and reports financial performance to stakeholders. This article will guide you through the necessary steps to create a process that will not only give you an accurate picture of your finances but will also keep your stakeholders informed.
Finding Success in Finance: Developing a Monitoring Process
Developing a monitoring process can be broken down into three steps: identifying key financial metrics, setting timelines, and using appropriate tools. The first step starts with identifying the financial metrics to be tracked, such as revenue, expenses, gross margins, cash flow, and profitability.
Once the metrics have been identified, the next step is to determine the frequency of tracking. Monthly monitoring is usually ideal for most companies, but for those experiencing significant changes in finances due to company growth, weekly tracking may be best.
The final step in developing a monitoring process is to use the appropriate tools for tracking financial metrics. There are various software applications that can be used to simplify the process, such as QuickBooks, Xero, or Wave. In addition, Excel spreadsheets are useful for tracking finances manually.
Keeping Things on Track: Reporting Financial Performance to Stakeholders
Reporting financial performance to stakeholders is just as crucial as monitoring it. The main audience for financial reports is typically investors, executives, and shareholders. The reports help stakeholders make informed decisions, detect problems, and identify areas of improvement.
When creating a financial performance report, there are a few elements that should be included. These elements include a summary of the company’s performance, an analysis of the key financial metrics, comparison to previous performance, and a forward-looking statement.
The summary of the company’s performance is crucial in summarizing the company’s overall performance in a concise way. Often, investors and shareholders just want a quick snapshot of the company’s financial situation. The analysis of key financial metrics should be more detailed than the summary, with a focus on trends, patterns, and changes.
In comparison to the previous performances, the report should be able to show progress, setbacks or improvement. It gives insight into how the company has evolved, and it highlights areas that need improvement. Finally, the forward-looking statement helps investors and stakeholders understand the company’s situation beyond the current period.
When developing a reporting process, the frequency should be based on the needs of stakeholders. Depending on the nature of the business, quarterly or annual reports will suffice. In contrast, if a company is rapidly changing, monthly or even weekly reports might be necessary.
Creating a process for monitoring and reporting financial performance to stakeholders is vital for any company’s success. It provides stakeholders with the right information to make informed financial decisions and helps to identify weaknesses and areas of improvement. By following the steps outlined in this article, companies can develop an effective process, adapt the frequency of reports and use appropriate tools to monitor and report metrics. Doing so will help stakeholders maintain confidence in the company and its financial situation.