Your guide to financial oversight

All business owners want their business to be successful. And while success can look a little different to everyone, the one thing they all have in common is they want to make money.

However, with all that money coming in and going out, who’s keeping an eye on things? Does your bookkeeper connect with your accountant who connects with your admin team? Are your processes and systems integrated? Are they giving you the big picture when it comes to the financial health of your business?

If you’re not entirely sure who occupies the very important financial reporting oversight role, you might find our guide to financial oversight a valuable tool.

What is financial oversight?

Financial oversight, more commonly known as financial reporting or financial controls, relates to all the financial processes, procedures, policies and systems you have in place to monitor the financial health of your business. Together, they should provide all concerned parties with accurate and timely financial reporting and analysis.  

Financial reporting may be a business requirement around compliance, such as reporting to shareholders or the Australian Taxation Office (ATO). Or maybe it’s just to make sure your cash flow keeps flowing over the quieter periods in the year.

An often overlooked financial task, especially for sole traders or small business owners who have few compliance issues to contend with, financial controls should be at the centre of everything you do.

Why is financial reporting important?

In a nutshell, financial reporting is important because it helps you figure out how much money you have, where the money’s coming from and how you’re spending it. Not to mention, some of the financial information is required by law.

These reports help the management team or board of directors make crucial business decisions based on the financial health of the business or company. They also offer important insight for shareholders and investors (or potential investors) who are justifiably keen to understand the financial strength of the business they have a financial stake in. 

The reports offer an accurate picture of a company’s finances for:

• Cashflow
• Revenue
• Profits
• Expenses
• Capital

Who's interested in the financial reporting for a business? 

Some of the entities who may be interested in the financial reporting for a business include:

• Management or executive team
• Shareholders
• Board of directors
• Banks and other financial institutions, particularly if they’re looking to lend to your business
• Potential investors
• Regulators
• Media 

What can financial reporting tell us about a business? 

Financial reports tell us many things about a business including:

Cash flow – where’s the money coming from and where’s it going? Is the business making a profit or losing money? Does your business have the resources needed for future growth? Cash flow shows how the business is performing, ways it can grow and if debts can be paid on time.

Investor information – current investors want to know how their capital is being used and if it’s being used effectively and efficiently. Potential investors want to know if your business is a good place for their money.

Business snapshot – allows for the analysis of assets, liabilities, processes, systems and owners’ equity. What’s working and what isn’t. What the future may look like and what your business can do to prepare. 

Flag issues – Something’s not working. Money is being wasted on an unnecessary process or worse still, money is missing. A financial report can highlight when something is wrong and flag potential issues before they impact your business.

Key financial reports:

• Balance sheet
• Profit and loss (or income) statement
• Cash flow statement
• Statement of retained earnings

What is reporting season?

All Australian Securities Exchange (ASX) listed companies are required to report their earnings to shareholders at least twice a year. The reports must be released within two months of the end of their balance sheet date which, for most companies, is 30 June and February. 

This means the full-year reporting season falls in August each year with half yearly results released in February. That’s why we see a flurry of press releases around these times announcing a company’s financial earnings or losses. 

Financial journalists, reporters and analysts are always interested in these reports, but especially so in times of financial upheaval or uncertainty such as during a pandemic or global financial crisis.

What are some financial oversight examples?

Financial reporting can include:

• external financial statements
• twice yearly reports to shareholders
• media releases outlining profits, losses or other important company announcements
• downloadable financial information and reports, generally posted to the company website or emailed directly to stakeholders 
• prospectus provided to potential investors
• compliance reports for government agencies

How can I create financial oversight for my business? 

If you’re looking at your lack of financial reporting now and wondering how to get started, begin with these simple strategies.

Set up -  proper processes, systems and controls. They’ll help you maintain control of your business operations and flag possible issues early. 

Report on – speak with your financial team or learn to understand the three basic financial reports; the balance sheet, the income (profit and loss) statement and the cash flow statement.

Call in - the experts if you realise stumbling for one financial year to the next isn’t the best way to maintain and grow a successful business. The Kelly+Partners team is here to help. 

Financial reporting takes expertise to create and analyse. Wherever you are in your business journey, contact us today  to discover how you can put into effect strong financial reporting and controls.