Business financial reporting to inform decision making

  Financial reports provide information that can be used to underpin decision making, for instance by helping management to plan effectively. Management are likely to consider financial data when taking actions towards achieving and maintaining a strong business cash flow position and a good level of profitability. 
 

  Financial reporting also helps management to identify business risks, by review of the data and trends, and to take measures to mitigate against those risks.

  Ongoing monitoring of cash flow inwards and outwards, of trade debtors and creditors, the level of investment, the level of extraction of funds and other key indicators can result in better decisions and a strengthening of business finances and operations.

  Preparing tight budgets can lead to a stronger cash flow position.
 

  Financial forecasting can provide an indication of the level of investment that will be necessary to achieve the desired amount of business growth.
It assists management in making a considered allocation of the business's resources. 
 

  A report might consider different levels of growth and the associated taxes. It helps business management decision making in that taxes eg Corporation Tax, VAT and PAYE are budgeted for, as are funds to be extracted by salary, dividend and pension contributions to a director's pension scheme.
 

  Financial reporting can highlight revenue drivers (products and services that give a strong return on investment) and other business performance indicators. It can also highlight the margin by which operational costs are being covered.

  Management can use financial reporting as an element of a Business Value assessment. The assessment includes making a comparison with selected other businesses of the same type in the marketplace. It indicates a range of values for the business and an estimated range of values for the competitor businesses.
 

  The assessment highlights any significant value gap and profit gap between the business and its competitors. In that case, it would encourage management to adopt strategies to bridge those gaps.
 

  Profitability improvements could be the result of optimising processes and lowering costs and also by increasing the business's non financial assets ('goodwill' in a broad sense). Example measures are building strong relationships between the business and its customers and with its suppliers and a policy of training its employees, so adding into the business new skills and the capacity to provide new or better products or services.
 

  Management could prepare a Business Value report annually to monitor the level of improvement and to assess how the business is standing at that time in comparison with others in the same marketplace.