Best practise what to include in your financial report for investors

What to be included in your financial report (best practise)

You need to figure out what you like to have included in your financial report, in particular with outside investors. Best practice financial reports include periodic financial information, trends and concluding financial analysis.

A best practice financial report includes:

  • Profit and loss statement table – actual period, budget for the period, same last year period.
  • Cost analysis – comments to why costs deviate vs budget or same period last year.
  • Business unit data – revenue, gross profit and gross margin.
  • Major legal entity profit and loss statements.
  • Cash flow and liquidity – difficult but very important.

So, let’s cover what to be included in your financial report, according to my own experience.

You need to decide if to report an operational or legal structure

If you operate a startup or a small business, you report your legal entity’s financial information. Early startups usually consist of one company and that legal entity’s financial data is what’s available.

As your business grow you may have different business units and soon you like to know each business unit’s performance. This is called an operational structure. Each business unit report their share of the total financial statement.

Organizing your accounts so that business units can be included in your financial report is great when managing a business. Not without hazzle thought. Each account entry needs to be market to what business unit it belongs.

You shall use power points for your financial report

Use power points for your financial reports and not written word documents. Comments, tables, and graphs are easy to paste into power point slides.

Your slides give a good overview encouraging discussions and can be used also in other presentations.

Best practice how to extract account data to your financial report

You need to extract data from accounting to make tables and graphs to be included in your financial report. Best practice is a Microsoft Excel template to which you file transfer your data, make your templated graphs and tables and then paste them to Power Point.

Shall you include the entire profit loss statement in the monthly report?

My experience is that all major items in a profit and loss statement are to be included in the report.

 The periodBudgetLast yearYear-end budget
Direct cost    
Gross profit (=)    
Gross margin, %    
Cost item    
Cost item    
Direct cost (=)    
EBIT (=)    
EBIT-margin, %    
Financial net    
EBT (+)    

In my experience you shall also add this to your report

I have good experience having below information included in your financial report:

  • Order received.
  • Order backlog.
  • Number of employees.

In addition, you can add on a quarterly basis when you also close your balance sheet items:

 The periodBudgetLast yearYear-end budget
Accounts receivable    
Accounts payable    
Op. working capital    

Please note though that you need to look at the change in accounts receivables, accounts payable, and inventory to get to your operating working capital. Having said that, its good to see the actual receivables and inventory numbers.

Why is cost such a focus in my financial report?

Cost is in focus in almost all financial report situations since over-spending is easy in areas not contributing to sales. It’s a good advice to have different cost sub-categories included in your financial report, for this reason.

Most important cost sub-categories to be included in your financial report are variable costs such as labor, material and travel that tend to vary over time.

Should graphs or tables be included in your financial report?

Some people like graphs while other prefer tables. You need to know you audience to know what to be included in your financial report.

Generally speaking, tables are preferred for the profit and loss statement, clearly showing individual line items. With tables you can also have different periods such as current period, budget, last year and year-end budget.

Graphs are usually included in your financial report when you like to show trends. For example how revenues, gross margin or EBITDA develops over time.

What periods shall be included in your financial report, except current period?

You need reference periods to be included in your financial report, such as the budget for the period. Most financial report also include the same period last year and also the total year-end budget.

I know from experience that it’s sometimes hard to remember previous financial report. You will make it easier to understand the company performance with different periods included in your financial report.

Shall periodic trends be included in your financial report?

You shall definitely include trend analysis in your financial reports. A company’s development over time is one of the most debated topics when the financial report is discussed.

These trends are usually shown with graphs in financial reports:

  • Revenue – indicating your sales progress.
  • Gross margin – showing are effective your pricing is.
  • EBITDA – proxy for cash flow (excluding working capital).

Why is the balance sheet usually not included in your financial report?

Most companies close their balance sheet accounting in quarters. The balance sheet is therefore not included in your financial report each month, but only in the quarterly reporting.

Some companies include specific, operational balance sheet items such as stock, to keep track on stock level development.

Does cashflow need to be included in your financial report?

Cashflow and liquidity is key to any business and shall be included in your financial report. You can use EBITDA as a proxy during the monthly reporting, when your balance sheet items are not available.

In the quarters, operational cashflow shall be included in your financial report:

EBITDAOperational profit excluding depreciations.
+ Change in receivablesWorking capital
+ Change in stockWorking capital
= Operational cashflow 

Read more why operating cashflow is important.

Does the presentation design matter for my financial report?

Well, presentation design is a matter of individual preferences. Financial presentations are usually made on corporate power point were tables and graphs are pasted from excel.

A standardized corporate styled power point presentation certainly express professionalism better than an excel file or non-branded power points.

Final remark

Most entrepreneurs that I know like to see analysis and recommendations within the financial report. In my own experience however, is that accountants are better to put numbers together than making analysis. No hard feelings, there are exceptions to the rule.

Most important in financial reporting is to consolidate and report your financials on a regular basis. Look at trends, beware what happens and take actions on development you do not like.

Use parts of your financial reporting as a communication tool how business is doing. Use your financial reporting as a basis for your budget and planning.

Good luck. Like the Germans say: Ordnung muss sein.

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