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The Importance Of Financial Reporting And Analysis

The Importance Of Financial Reporting And Analysis

With the End of Financial Year (EOFY) fast approaching, SMEs are now starting to prepare financial reports. But more than a mandatory report to be submitted to the taxation office, financial reports play a critical role in building a successful business.  Financial reporting and analysis offer insights into financial data that will help you make better business decisions, eventually improving the business’s financial performance.

We’re providing you with a comprehensive guide to help you understand how crucial financial reporting and analysis are to your business. In this article, we will explore the importance of financial reports and how they benefit different business stakeholders.

What is Financial Reporting?

Financial reporting is a standard accounting practice that documents the company’s financial data. This data helps companies understand their financial health and performance in a specific period. Based on the report, they can make informed business decisions.

Financial reports are useful for businesses and for, investors and banks. Based on these reports, an investor or a bank invests or gives loans to a company. Suppose you plan to expand your business, and a bank will grant a loan based on your company’s financial report. If the company is financially healthy, then you can expect a loan for your business expansion.

How are financial reports generated?

The use of spreadsheets for financial reporting is widespread across businesses worldwide. However, spreadsheets can fall short of capabilities to generate efficient financial reports as a business grows and more users, data, and formulas are added to the reports. Financial reporting has become more efficient and sophisticated thanks to digital technology.

More and more businesses are now adopting the use of ERP platforms to streamline their accounting, automatically generate financial reports and even provide data-backed insights. Integration with other solutions, such as Accounts Receivable automation, further improves accounting software’s capabilities to create fast and accurate financial reports.

Types of financial reporting

1. Income Statement

An income statement or profit and loss statement essentially show a business’s loss or profit during a specific period. It’s a summary of key sales activities, costs of production, and any other operational expenses within the accounting period. This statement aims to understand if the business is making any money or suffering losses.

2. Balance Sheet

A balance sheet provides an overview of a company’s overall assets, liabilities, and stakeholders’ equity. Broadly, the balance sheet reflects the financial health of a company. By analyzing this sheet, the company’s management can see where the business is heading.

The balance sheet is not only useful for the management but also for investors. By assessing the balance sheet, investors can form an opinion on whether to invest in a specific company or not. The sheet has all the vital information like the company’s finances and other data to help them make an informed investment decision.

3. Cash Flow Statement (CFS)

A Cash Flow Statement (CFS) documents the amount of cash coming into the company and the cash flowing out of the company during a specific period. The statement includes elements of both the income statement and balance sheet. CFS is critical because it tells the business owner or management about the company’s cash position. Businesses need sufficient cash all the time. They require cash to pay expenses, loans, taxes, and equity purchases. A cash flow report tells if the company has sufficient cash for carrying out such activities.

Now that we have seen what financial reporting is let us explore some benefits of financial reporting.

 

financial reporting benefits

Benefits of Financial Reporting 

1. Helps In Effective Debt Management

The poor management of debts can be disastrous for any company, whether small or big. When it comes to debt management, several financial reporting platforms are available that will help you track your company’s current assets, current liabilities, accounts receivables, and liquidity. AR automation software provides data on your customer’s credit scores that can help you gauge how to manage debts effectively.

2. Trend identification

Financial reporting helps identify seasonal trends or cycles that can help you plan ahead. Understanding trends and the historical context of numbers empowers you to improve your business’ performance effectively.

3. Real-time insights

Updated financial reporting provides you with real-time insights into your financial health. Thanks to advancements in technology, access to real-time data are possible and provides you with the ability to take action to either correct issues or take advantage of opportunities. Cash Flow statements, for instance, provide you with information about the company’s availability of funds which will help you ensure you always have money to cover payments.

4. Liabilities tracking

Managing liabilities is paramount for any business, especially if the business is looking to apply for a bank loan for expansion. Defaulting loan payments is seen as a red flag by banks that can reject the application for a loan. A financial reporting template allows for exploring current liabilities. Based on the data, the company can determine if it is required to reduce liabilities before applying for a bank loan.

5. Compliance

Complying with the rules is essential for the survival of any business. Maintaining updated financial reports help your business comply with the regulations set by the governing body.

6. Cash Flow

Management of cash flow is essential to any business. If you face challenges with the cash flow, financial reporting metrics will let you know the root cause of the problem.

With benefits covered, let us get to the crux of the topic – The Importance Of Financial Reporting.

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Why Is Financial Reporting Important?

Financial reporting offers a wealth of insight into financial data that helps make better business decisions. Apart from this, there are many other reasons. Let us look at each one of them in detail.

1. Taxation purposes

The biggest reason for performing financial reporting is taxes. For instance, you need to lodge EOFY tax returns and other financial reports in Australia. These reports are mandatory by law to ensure that a company pays its fair share of taxes. Before filing taxes, an audit is also necessary, and accounting and auditing firms review financial reports to ensure accuracy and credibility.

2. For Attracting Investors, Bank Loans

Financial reports are critical for attracting investments. If you are looking to expand your business, the investor will surely ask for the company’s financial report. The investors will examine the report to see how the company is performing. Is it earning profits? Or is it at a loss? How is the company managing its cash flow? These are some key indicators that investors examine. 

If your company’s financial health is not optimal, no matter how excellent your product/service is, most investors will decline to invest in your company. Similarly, when you apply for a business loan from a bank, the bank examines your company’s financial report before lending the loan. Based on the information gathered from the report, banks can determine if the company can repay the loan.

3. For Better Business Decision-Making

A financial report is one of the essential tools for making better business decisions. For instance, if you want to open a new branch, a financial report can help you gain insights. You can assess crucial information like the company’s cash flow to identify if you have enough capital to expand and maintain solvent for daily operations. However, it is necessary to have detailed financial reports based on accurate data to make such decisions. 

In a survey conducted by Deloitte, most respondents identified an insufficient level of details as the main issue in financial reporting, as this can affect financial performance assessments. The advent of modern accounting software has mitigated inaccuracies from old financial reporting techniques, leveraging data and automation to reduce errors in financial reports. These software solutions often have an intuitive dashboard that provides businesses with critical information in an easy-to-understand format to help them make better financial decisions.

4. Builds Trust With Stakeholders

Financial reports help in fostering trust with stakeholders. Accurate and transparent financial reports – backed by data – help convince stakeholders about your business’ performance. Leveraging technology helps build detailed, accurate reports that provide your stakeholders with the information they need to understand your business’s financial position and performance. 

Who Uses Financial Reporting and Analysis?

Throughout the article, we’ve often mentioned several entities that can benefit from financial reporting and analysis, such as investors or lenders. Here is a list of other entities.

1. Business Managers

Business managers use financial reports to help them track and measure the performance of an organization. With deeper insights, they can then devise intelligent strategies to improve the company’s financial health. 

2. Tax Agents And Various Government Agencies

These groups use financial reports to check if the businesses comply with tax regulations. Financial reports are also reviewed as part of the auditing process.

3. Customers

Customers use financial reports to judge whether a company is reliable to do business with. They examine the statements to ensure that the company is financially healthy and determine whether it can stay for a long period.

Conclusion

Financial reporting is essential for any business, regardless of its size. It helps you better understand the company’s financial performance and enables you to make the right decisions that help in the growth of your business. 

Manage your accounts receivables better

 Book a demo of ezyCollect and see how AR automation can help you keep track of accounts receivables and improve data accuracy in your financial reports.

Bank-by-Bank COVID-19 Business Support

Bank-by-Bank COVID-19 Business Support

The  financial contagion of the COVID-19 pandemic is expected to reach every business and every household. No one will be immune. Business banking units across all major banks have pivoted to engineer their own COVID-19 economic response to help businesses stay open or re-open in time.

No doubt it’s an ever-changing landscape and packages could change. Here’s what we can gather so far:

The Australian Banking Association advises people or businesses in distress to contact their bank’s financial hardship team.

Banks are providing assistance in relation to the following:

  • Deferring loan payments
  • Waiving fees and charges
  • Consolidation of debts
  • Easier access to term deposits
  • Deferring credit card payments and increasing limits

The Australian Banking Association has provided the following contact details for banks:


BANK

PHONE NUMBER

WEBSITE
AMP 1300 130 191 Experiencing financial hardship 
ANZ 1800 252 845 Customer Connect 
Arab Bank  1800 64 64 84 Hardship Assistance
Bank Australia  132 888 Contact Us
Bank of Sydney  13 95 00  Financial Hardship
BOQ  1800 079 866 Financial Hardship Assistance
BankSA 1800 679 461 BankSA Assist
Bankwest 1300 769 173  Experiencing financial hardship
Bendigo and Adelaide Bank 1300 652 146 Financial difficulty assistance
Citibank 1800 722 879  Hardship assistance
Commonwealth Bank 1300 720 814 Emergency assistance
HSBC 1300 555 988 Financial difficulty
ING  1300 349 166 Financial Hardship
Macquarie Bank  1300 363 330 Financial Hardship 
ME Bank 1300 500 520 ME Bank financial hardship
MyState   13 800 1  MyState financial hardship
NAB  1800 701 599 Financial Hardship 
Rabobank  1800 025 484 Financial Hardship
Rural Bank  1800 660 115  Financial Hardship
St. George Bank 1800 629 795  St. George Assist
Suncorp Bank 1800 225 223 Suncorp Customer Assist 
Westpac 132 142 Westpac assist


Learn more about ezyCollect’s Business Support Program


Banks to defer small business loan repayments

On 20 March 2020, Australian Banking Association CEO Anna Bligh announced a small business relief package on behalf of Australia’s banks.

Australian banks will defer loan repayments for small businesses affected by COVID-19 for six months.


Describing it as “a lifeline for small businesses when they need it most”, Ms Bligh urged small businesses to contact their bank to apply.


COVID-19 support from the major banks for small and medium businesses

The big four banks have all announced their current COVID-19 response support for business customers.


ANZ

  • Decrease variable interest small business loan rates in Australia by 0.25%pa, effective from 27 March 2020.

  • All impacted customers can request a six-month payment deferral on loan repayments for term loans, with interest capitalised.

  • Making available temporary increases in overdraft facilities for 12 months.

  • A reduction by 0.80%pa to a new two and three-year fixed rate of 2.59%pa for secured small business loans up to $1 million, effective 3 April 2020.


Commonwealth Bank of Australia

  • Reduced rates on business loans by 25 basis points.

  • Faster decision times for small business loans.

  • Deferring repayments and waiving fees.
  • Deferring repayments on a variety of business loan and overdraft products, for 90 days.

  • Waiving merchant terminal fees for impacted customers with CBA payment terminals, for 90 days.

  • Waiving early redraw fees on business term deposit accounts (including Farm Management Deposit accounts).

  • Waiving establishment fees and excess interest on Temporary Excess products.

  • Deferring repayments on vehicle and equipment finance loans, and providing tailored restructuring options that meet individual customer needs.

Commonwealth Bank of Australia has also committed to paying its Australian suppliers faster.


Get paid faster with ezyCollect’s Business Support Program


NAB

  • Defer principal and interest for up to six months on a range of business loans, including floating and variable rates and equipment finance loans.

  • Reduction on variable rates for small business loans by 100 basis points, from 30 March 2020.

  • Receive a 200-basis point rate cut on QuickBiz loans and overdrafts from 30 March 2020.

  • Pause business credit card repayments for up to six months (including a three-month checkpoint).


Westpac

  • 200 basis point reduction on overdrafts for new and existing customers from 6 April 2020.

  • 100 basis point Interest rate reduction for small business cash-based loans, from 6 April 2020.

  • Waiving merchant terminal rental fee for three months.

  • No establishment fees for equipment finance loans until the end of June 2020.

  • Eligible Westpac small business customers who need help to manage their cashflow can defer principal and interest payments of business term loans (excluding credit cards, overdrafts, cashflow/invoice/trade finance, commercial bills), equipment finance facilities and equipment loans for six months.

Eligibility criteria apply.


Coronavirus SME guarantee scheme 

The Australian Government recently announced the Coronavirus SME Guarantee Scheme to support the flow of credit in the Australian economy, especially for small and medium enterprises (SMEs).

The Scheme is designed to help SMEs access additional working capital funding from lenders.The Government will provide eligible lenders a guarantee of 50 percent on new unsecured loans made by SMEs. The following criteria apply:

  • Maximum total size of loans of $250,000 per borrower.

  • The loans will be up to three years, with an initial six month hold on repayments.

  • The loans will be in the form of unsecured finance, meaning that borrowers will not have to provide an asset as security for the loan.

  • SMEs with a turnover of up to $50 million will be eligible to receive these loans.

  • Loans will be subject to lenders’ credit assessment processes in the context of the uncertainty of the current economic conditions.

Lenders are currently assessing their facilities and are expected to announce further details soon on how business customers can apply for a new unsecured business loan.

The Scheme will commence by early April 2020 and be available for new loans made by participating lenders until 30 September 2020.

ezycollect’s Business Support Program is helping SMEs survive this critical COVID-19 period.

Australian Business Growth Fund: What it means for your  business

Australian Business Growth Fund: What it means for your business

The Morrison Government announced on 27th November 2019 that it will establish an Australian Business Growth Fund that aims to invest an ambitious $1 billion in Australian small and medium sized businesses. 

The Australian Business Growth Fund will start with an initial investment capacity of $540 million, funded by $100 million each from the Government, ANZ, CBA, NAB and Westpac. HSBC and Macquarie Group will each contribute $20 million.

Initially a Coalition election promise back in April 2019, the fund’s announcement comes after the major financial institutions agreed on their terms and operational structure.

Use our free resources for growing businesses


What is the Australian Business Growth Fund?

The idea of the Australian Business Growth Fund was first publicly canvassed in June 2018 by the Australian Small Business and Family Enterprise Ombudsman, Kate Carnell. It was the number one recommendation in the ASBFEO’s Affordable Capital for SME Growth report.

The ASBFEO’s Inquiry into sources of capital for business growth concluded that finance was both scarce and expensive. The Business Growth Fund was one of the ASBFEO’s eight recommendations to address the market failure to provide affordable capital to growing SMEs.

International precedents suggest the new growth fund will boost the Australian economy. The United Kingdom’s Business Growth Fund has invested $2.7 billion in the UK economy since it was established in 2011.

Now, the Morrison Government’s Australian Business Growth Fund will provide equity funding of up to $15 million to eligible SMEs to help them grow and fulfil their potential. In return for an investment stake of 10 to 40 per cent, the Business Growth Fund will provide long-term capital investment alongside support for business growth strategies.

The Australian Business Growth Fund will operating as a commercial entity independent of the Government and participating banks. No doubt it will expect a return on its portfolio companies. Still, the Business Growth Fund’s investment stake means that business owners can maintain their controlling interest.


How can the Australian Business Growth Fund help your business?

The $5 million – $15 million investment cap per business suggests a limited number of Australia’s 3 million SMEs will receive the capital boost. Nevertheless, the Business Growth Fund is expected to fill a gap in funding options for businesses beyond the start-up phase.

Often turning to private equity or bank loans to raise capital, SME owners risk losing ownership of their business, or even the family home, in a bid to fund growth. 

Speaking at the launch on 27th November, Treasurer Josh Frydenberg described the investment as “patient and passive capital” over a five-year period, ideal for businesses that would rather have equity than debt.


Are you eligible for the Australian Business Growth Fund?

Australian businesses that meet the two criteria are eligible for funding from the new growth fund: 

  • Must have generated annual revenue between $2 million and $100 million, and
  • Can demonstrate three years of revenue growth and profitability.

Unlike a lot of start-up funding where profitability isn’t crucial, the Business Growth Fund is clearly looking to invest in businesses that have already punched through the profitability ceiling.

The details of how to apply for funding have not yet been released.

In brief:

  • The Australian Business Growth Fund will initially invest $540 million in eligible Australian SMEs.
  • Portfolio companies will get $5 million to $15 million equity funding over five years plus support for business growth strategies.
  • Eligible SMEs must already be profitable and generating annual revenue between $2 million and $100 million.

Access ezyCollect’s free toolkit for resources to help your growing business

New feature: Extra working capital for financing cashflow

New feature: Extra working capital for financing cashflow

Even healthy businesses can experience a cashflow gap at times—that period of time when cash incomings are not enough to meet the demands of cash outgoings. Financing cashflow is a constant juggle. A temporary cashflow gap shouldn’t become a major barrier to business as usual. That’s why ezyCollect has integrated a new feature, Cash Flow Advance, to support healthy businesses to keep growing.


Your financial controller will often anticipate cashflow gaps. Planned capital expenditures, predictable seasonal lows or large upfront payments will predictably decrease the amount of cash available as working capital.

At other times, cashflow impediments can appear swiftly to derail business. Late payments, slow-moving inventory and disputed invoices could mean that your cash is locked away indefinitely. Still, with a back-up plan, financing cashflow shouldn’t be stressful.

ezyCollect’s cashflow boost for healthy businesses

In the ezyCollect app, approved users—companies using ezyCollect to streamline accounts receivable—will be able to apply online for an unsecured line of credit via our finance partner.

Up to AU$20,000 will be available to users pre-approved by
ezyCollect. Pre-approval is based on the positive health of a company’s
accounts receivable ledger over the previous six months as assessed in
ezyCollect, plus a free credit check by the finance provider.

ezyCollect’s CEO Aj Singh is determined to support businesses to keep thriving. “A cashflow advance, exactly when you need it, can help to keep your good momentum going,” says AJ.

cash flow advance-1

Pre-approved ezyCollect users can apply for a cash advance in-app


Fast-tracked funds for immediate use

Because the pre-approval is done for you, any company that chooses the finance offer will receive their funds within 24 hours.

ezyCollect’s pre-approval process takes away the time a business
would otherwise have to spend on gathering and presenting their
financial records.

“In conjunction with our financial services partners, we want to take away the friction that worthy businesses experience when they want to apply for a line of credit. Their data is there; they have already proven their credit worthiness,” says AJ.

“…we want to take away the friction that worthy businesses experience when they want to apply for a line of credit.” AJ Singh, CEO ezyCollect

 

Being able to access cash on demand means that your business can take advantage of great opportunities to save money:

  • Buy in bulk for volume discounts
  • Access early bird discounts for a cheaper price
  • Pay with cash to avoid high interest rates on credit cards
  • Pay suppliers on time and avoid late payment fees

Transparent fees with no hidden costs

As with any financial product, businesses should independently assess
the fees and tax implications of ezyCollect’s cash advance offer.

As an example, a $10,000 cash advance in ezyCollect incurs the following 4-month repayment schedule*:

  • $150 activation fee (Deducted from loan so no upfront costs)
  • Service fee of $100 per month throughout the life of the loan (1% fee per month)
  • 4 equal instalments deducted monthly

You can repay early at any time for no additional cost.
(*current as at August 2019)

In summary:

  • Pre-approved ezyCollect customers can apply in-app for up to $20,000 as an unsecured line of credit.
  • Funds are available within 24 hours.
  • Repayments are undertaken with the finance provider.

To see how ezyCollect can streamline your AR process, request a demo today:

 


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