Looking at financial reports for your business is a core activity of running a successful business. However, enhanced reporting beyond your income statement, balance sheet and cash flow statement is also essential to your growth strategy — but many business owners don't know where to start.
Once you learn how to customize reports for your business, you can develop valuable reports to take a deeper look at your data, adjust your strategy and grow your company.
What is enhanced reporting for your business?
Enhanced reports can be any customized report you make that goes into more detail than a typical financial statement would. Those could include reports that show:
- Your revenue broken up by location, project, product or service offering
- Your expenses by department or cost center
- A comparison of your actuals to your budget and forecasts
- An analysis of customer acquisition costs and profitability by marketing channel
Although those types of reports may not be used as widely or as often as your financial statements, they could still provide valuable insights into your business and on how to focus your resources toward improvement.
How does enhanced reporting differ from standard financial statements?
Your balance sheet is simply a snapshot of a moment in time. Enhanced or customized reports can be much more than a snapshot. Enhanced reporting allows you to look at dynamic analytics — which can be used to forecast future performance. This allows them to show trends and patterns you can use to make decisions that direct growth in your organization.
You can apply dynamic analytics and enhanced reporting to income statement data as well. For example, dynamic analytics allow you to play with price or cost changes for a product or service to see how that affects revenue, expenses, gross profit and ultimately net income. That is something you likely wouldn't learn solely by looking at your financial reports as is.
Finally, you can also understand cash flow and cash flow statements better using enhanced reporting. For example, you can analyze how expanding your product line or taking on new debt may affect your cash flow. This can help you forecast and plan for future growth accurately and effectively while ensuring you'll have the cash available to meet regular needs like payroll, rent, utilities and recurring service bills.
Tax Prep vs. Business Growth: Why does enhanced reporting matter?
Looking at financial reports is a great way to gauge your company's current state of health and prepare for tax season. However, they may not be as useful as enhanced reports when it comes to helping you make substantial decisions to expand your business.
Financial statements aren't able to show you hypothetical situations or breakdowns of your earnings. They can show you how things are now — but not how things may change or look in the future. So while they're a good starting off point to evaluate your financials, custom reports are what your business needs to truly grow.
You don't have to solely rely on either your financial statements or custom reports. In reality, you should analyze both for creating the best action plans for your business. Your financials show where your business is at now, while enhanced reporting can give you greater insights and uses forecasting to show where your business can be after specific, focused and strategic changes.
How can past reports shape future business decisions?
There are several ways that past financial reports, along with enhanced reporting, can help shape your business strategy. For starters, you can analyze your leading and lagging indicators over time. Leading indicators are the proactive steps you can take towards creating specific outcomes, like website clicks and phone inquiries. Lagging indicators are measures that show the results of past actions, like revenue growth.
By tracking and analyzing these indicators over time using statements and reports, you can make more informed decisions about your business's future. This is where enhanced reporting — broken down by projects or promotions, for example — becomes a vital tool in your ability to improve on strategies that weren't effective and repeat the ones that were.
Setting time to look at these trends is important because as a busy small business owner, you may prioritize getting through the month or year without focusing on the big picture. You might review your numbers prepping for tax season, but simply looking at the past year could be holding your business back.
Instead, take the time to analyze your past financial statements and use custom reports — ideally with your accountant — to see if any product, staffing or marketing changes could improve your business.
Who should be analyzing these enhanced reports?
Appointing the right people to analyze your financial statements and enhanced reports plays a huge role in making strategy a priority. As the business owner, you should be involved in the process, since you're the one that gets the final say in business decisions — but you don't have to do it alone.
Other managers in your company can participate as well. Your departmental leaders have specialized knowledge to help you understand different core needs as well as options for development. For example, if there was a spike in sales at one point in the year, a marketing manager could show you reports that show it was caused by a viral marketing campaign — which helps you decide if you want to invest more money into campaigns and when to replicate the success.
If you're working with an experienced accounting team, they can also be instrumental in helping you analyze and create the most useful reports for your business, including how to measure success and how to draft goals and a budget so those reports are focused for you.
The bottom line
Enhanced reporting is an underrated and overlooked tool for many business owners. Nearly every accounting software enables you to create custom reports for your business, including sales breakdowns and expense forecasts. These reports, along with your standard financial statements and analysis from your accountant, can provide a more comprehensive view of your business and help you make impactful decisions.
There's nothing wrong with looking at your financial statements like your balance sheet, income statement and cash flow statement to analyze your performance. While accurate, which is their intent for tax preparation, they provide a limited view of your business.
If you aren't using the power of enhanced and custom reporting to help drive your financial decisions, get in touch with DiMercurio Advisors today to learn how to make this an integral part of your business.
