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Financial reporting involves generating financial statements, which communicate the financial position of a business to business owners and managers, employees, investors, tax authorities, and financial institutions.
These statements are used for multiple purposes such as sharing a business’s financial standing with potential investors or banks planning to lend working capital to the business. The statements are used by business owners and managers to take important business decisions and for operations such as preparing budget models. Employees use these statements for creating collective bargaining agreements in case of trade unions or negotiating their compensation and ranking. Further, tax authorities, such as the IRS, use these reports to evaluate the company’s tax filings and compliance.
However, managing the process without a financial reporting tool can be laborious for you and risky for the business. It can be laborious as you have to carry out complex calculations in spreadsheets and often enter the same data in multiple sheets to generate reports such as income statements and balance sheets. It can be risky for the business as inaccurate financial reports increase the risk of non-compliance with accounting regulations.
Using financial reporting solution helps reduce manual labor, ensure compliance with important accounting regulations, and provide a clear view of the business’s financial position. In this buyers guide, we will understand the key components of financial reporting software. We will also help you select the right software for your business based on your business requirements. Here is what we’ll cover:
Financial reporting software provides a clear view of the business’s financial position by helping generate accurate reports such as cash flow statements and balance sheets.
Accurate financial reports are important to ensure compliance with accounting regulations by avoiding inaccurate financial disclosures. Further, the tool helps make informed business decisions by predicting potential financial scenarios for users to, understanding their business impact.
To select the right financial reporting tool, it is essential to understand the deployment options available and how they impact your business. Here are the two main types of deployment options:
Cloud-based deployment: Cloud-based software vendors host their solutions on third-party or their own servers. They also take care of the maintenance and support of these solutions. Software users can access these solutions on any device connected to the internet. These solutions are usually available for a subscription-based pricing model, paid annually or monthly.
On-premise deployment: Businesses host on-premise software on their own servers and self-manage data storage, updates, and maintenance. Users can access these solutions only through the devices installed on business premises. The pricing model of these solutions is license-based and depends on the number of users.
Key questions to ask vendors: Do users require additional training and support to operate the tool? Is the training free or does it come at an additional cost?
Understanding of the common features of financial reporting software will ensure you select a solution that caters to the core requirements of financial reporting.
Here are the common features of financial reporting software:
Profit and loss statement (P&L): Gain a complete view of your current revenue, profit, and spending through informative dashboards. The tool helps you plan your budget better by spotting trends in income and spending. You can also identify the cause of such trends, which may be a strategic marketing campaign, profitable season, or market situation.
Balance sheet: Automatically prepare balance sheets using your P&L statements. You can also generate balance sheets by importing data from spreadsheets or tools like Tally and Busy. Further, you can compare your financial position across months, quarters, or years.
Cashflow: Identify the impact of cash inflow and outflow on your business. You can also view the impact of cash flow on your departments, lines of credit, and other operations. The tool also helps monitor cash flow using your income statements, tax calculations, and profit and loss statements.
Forecasting: Forecast financial scenarios and your future financial position. You can use current or past financial data to predict potential business events or identify market trends. The tool also helps compare the impact of potential events using “what-if” scenarios.
Key question to ask a vendor before you buy: Does your tool offer all the above-mentioned features under the same pricing plan or are some of these included in a premium plan?
Note: The applications selected in this article are examples to show a feature in context, and are not intended as endorsements or recommendations, obtained from sources believed to be reliable at the time of publication.