Financial reporting is strategic for the organization. But it is not always easy to access and interpret the data that these documents collect.
CFOs look for simple, functional tools that allow them to act diligently.
But above all, that helps them access information that is key for decision-making. We are talking about Reports that are very specialized and that require the use of intelligent applications, if possible, ERP that leaves the “door open” to BI solutions to simplify work.
The financial areas must be able to drill down into the data to examine the balance sheets, the ledgers, the auxiliary. When an adjustment is published it must be able to reflect it immediately in the reports.
Comparisons between different periods of time or between planned budgets and actual data should facilitate the analysis and identification of the causes that caused these deviations.
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These are just some of the functions that financial areas, including those of SMEs, have to face, however much we think – wrongly – that a company of this type does not support major complications in this environment.
However, like large corporations, the financial managers of an SME have to do complex searches, for example, when they need to identify the discounts associated with a payment or when they want to decide on which accounts receivable should focus.
These are just a few examples that show why agility, flexibility, and control over financial reporting are important. But, let’s go by parts:
Why is Financial Reporting and Analysis Important?
The answer to this question is relatively straightforward. The financial area is the exclusive depository of economic information on the general situation of the company. In other environments, economic information is also handled, of course, but of a partial nature. That is, it affects exclusively a specific environment, for example, commercial -information on purchase prices, margins, etc.- or labor -data on the payroll.
However, an economic-financial system is the only one capable of focusing on the global results of the business – profits or losses, equity, etc. – and, ultimately, it is where we find the tools and the ability to value that global economic information. Therefore, the responsibility of the financial management is to filter and report all this economic-financial information to the general management, on the one hand, and, to the different area directorates, on the other.
Filtering is not only selecting the appropriate information but also giving it an understandable and manageable format to present those reports and their corresponding interpretation, to the management. In this sense, the ability to analyze and interpret the financial area will depend a lot on the reporting system used. And, the reporting system to be complete must be based on advanced IT solutions.
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What are Financial Reporting and Metrics?
Financial reporting focuses on all economic data that is reflected in accounting. In turn, an accounting system is a registration system that allows us to reflect everything that is happening, economically speaking, in the organization. On the other hand, the CFO must think, within all that information he receives, what metrics he wants to control, for which he must establish a series of KPIs that allow him to observe all the data that he has at his disposal and that he needs to evaluate.
Some examples in this regard: FINANCIAL RATIOS (maneuvering ratio, indebtedness, quality of debt, leverage …) PROFITABILITY RATIOS (net margin, return on equity, profitability on investment …) MANAGEMENT RATIOS (average term of collection, average payment term, and cost of credits …)
After determining what information you need to analyze, you should establish a periodic reporting system and define the type of reports that may interest us. For example Debt aging reports, expense comparisons in a specific period – or also: budget control with budget planning columns, results, and deviation; justification reports of results through analytical accounting, etc.
How Do ERPs Help with Financial Reporting?
The essential condition for an SME and its financial area to establish this type of analysis system is that they have an optimal global or financial ERP. The objective of these applications, we could say that it is threefold:
- Automate data entry
- Organize the data in an orderly and classified way
- Exploit the data through different reports
Now an ERP is a tool. It is therefore essential that users should have good initial training to configure and use the system properly and extract its maximum potential. This, by the user, but the system must also show facilities to integrate with other complementary applications that enrich its operations and, therefore, the information it provides.
Integration as the Norm
As ERP manufacturers we would like to machine everything. Of course the financial and accounting part but also the management part – purchases, warehouse, production. However, as we have commented many times, this is not always possible because there are sectors in which the operation part -management- must be supported by vertical software: hotels, logistics, construction … In those cases, it is very important that financial software have the ability to integrate the data that comes from those other vertical operating systems.
On the other hand, there are other types of solutions, such as BI platforms, for example, that are particularly designed to create reports with graphs, simulations, etc., and delve into the data, complementing the information provided by the ERP.
In this sense, the versatility offered by these enterprise resource management systems is essential to facilitate their integration with any BI solution. Once again, collaboration is the key.
BI platforms alone are not the solution for financiers, since it is in ERPs where the financial data to be exploited are generated. The integration between BI solutions and ERP platforms make up an ideal tandem for the generation and analysis of financial reports.