Dr Keen Mhlanga
The financial system comprises multiple financing options; this gives companies a wide range of preferences on maintaining liquidity. Investors are showing a keen interest in companies with a forecast high growth rate in future earnings.
The qualifying fundamentals include low risk, proper record keeping and financial reporting standards.
According to a survey done by FinKing Financial Advisory in August 2021 on funding applications, only 23 percent were considered for further review by investors, with 45 percent of companies having no proper bookkeeping and 32 percent with poor financial reporting standards.
Reasons for such outcomes resort to poor corporate governance, erroneous bookkeeping or financial reporting and lack of financial literacy. Poor financial reporting is one of the prime reasons businesses fail. Without bookkeeping, business will be running in complete darkness.
Bookkeeping is very essential because it guides a company when preparing a budget, which creates a financial road map for a business with clear and realistic figures. When income and expenses are properly organised, filed, accurate and readily available, it makes it easier to review financial resources and expenses. This will also ensure that a firm can plan for future expenses and the anticipated resources that would cover those expenses.
Companies are mandated to file a tax return annually by the Income Tax Act (Chapter 23:06). With a bookkeeping process in place, all financial information will always be ready for tax reason and in most cases, there will be no reason to worry about scrambling for receipts and invoices, tax returns are also made easier.
An organised Statement of Financial Position, Statement of Cash Flow, Statement of Comprehensive Income and Statement of changes in Equity, implies that a financial advisor will devote time in giving you sound tax advice instead of correcting entries in the financial statements.
This makes it easier for a company to report the financial status to investors, with a perfect presentation including necessary graphs, charts and list of dates. Bookkeeping paints a clear picture of how money is spent, pending or outstanding invoices can be seen. A company will benefit from paying bills on time and receiving payments for products or services on time too.
It is a bad culture for companies to respond inversely to financial reporting, especially when a tax clearance is needed by suppliers — rushy and dodgy bookkeeping is vouched for. Many firms tend to do estimates and incomplete records based on financial statements when applying for a loan with a bank, the other option is when they want to merge or find an investor, they “cook” the books.
That last-minute stress of trying to find a crucial piece of business will always lead to missed deadlines and some small errors creeping through. Businesses of any size cannot afford to make any mistakes or rough estimates where bookkeeping can regularly help with that.
Apart from giving shareholders a peace of mind when books are complete, they give business owners room to focus on other corporate elements. If books are in shamble this can weigh heavily in the mind of corporate owners, this can also attract serious penalties and fines for not meeting deadlines.
Flowing and systematic recording facilitates the management cash flows and enhances businesses to follow the adequate steps recording financial data effectively through bookkeeping. It depicts the sources from where the cash flows are coming from and use — where cash is spent, to avoid cash crunch.
It is agreeable for firms to use accounting softwares in this digital age, which save time, continuously monitor financials, track and manage cash flow, have a short learning curve, minimises mistakes and they have scalable solutions, bookkeeping deals with financial aspects of transaction. Companies may use various software like Pastel, FreshBooks, Xero, Wave, QuickBooks, Zoho, Sage 50cloud, Intuit and Odoo.
Electronic filing is also important as it is faster to retrieve information than manual search and physical filling, it promotes neat and tidy working space with computerised invoicing.
Financial reporting enables firms to maintain a trail of current assets, liabilities, and liquidity. This information can be used by a company to manage their debts, which can be greatly beneficial to the company. The ways in which financial reporting and analysis can improve debt management is one of the reasons why companies opt for financial reporting services and statutory reporting services.
As important as debt management is, so is managing a company’s liabilities, which include credit lines, business loans, and credit extended from vendors. Financial reporting and analysis will give corporates a better idea of their liabilities and how they can better manage them.
When making critical decisions where liabilities are under consideration, it is best to consult a reliable financial advisor. A financial advisor offers more than bookkeeping and company secretarial services and a trusted advisor will use financial reporting and analysis to detail what is best for a company at a given time.
Accurate and proactive financial reporting and analysis can make a big difference in a company’s financial performance. And by understanding their importance and investing in the digital tools that can help you perform them with maximum effectiveness, companies can extract the insights that will help you make better business decisions.
It’s evident how critical good financial reporting can be, but a lot of guidance is needed for impeccable execution. Whether a firm chooses to outsource or tackle it internally, it is always sound to be in sync with International Financial Reporting Standards (IFRS).
Foreign investors or financial institutions often request recent and accurate financial data for analysis before making an investment or loan. It is possible that some business owners have never prepared a set of financial statements throughout their career. This can be a daunting task and being able to bring in someone with high level experience may be of great benefit.
Founder and Chairman FinKing Financial Advisory/[email protected]