Updated: Oct 27, 2022
If you're a business owner or founder, you know that keeping track of your financial data is essential. But what if your investor wants better access to that data? How can you make sure they have the information they need while still protecting your own interests? Check out our latest blog post for tips on how to manage this tricky situation.
1. The need for better financial data
Good financial data is essential for any business. It provides insights into metrics such as profitability, cash flow, and return on investment. It also helps to assess the performance of different parts of the business, such as marketing, operations, and product development. Ultimately, good financial data is essential for making informed decisions about where to allocate resources and how to grow the business.
2. What investors are looking for in your financial data
Investors want to see that you have a strong understanding of your business operations and the key metrics that contribute to its success. This means having a clear grasp of your P&L statement and Balance Sheet, as well as any other financial reports that are relevant to your business. Additionally, it's important to be able to articulate how various metrics like revenue, costs, and margins impact your business. This demonstrates that you have a strategic understanding of the financial levers at play in your industry. When investors see that you have a firm handle on your financial data, it instills confidence in your ability to grow and manage the business successfully.
3. Common problems with bad financial data
Chart of Accounts (COA): Might not have enough detail or not layered in the proper format splitting out COGS from SG&A and one-time expenses.
Department Coding: Not Coding to specific departments and sub-departments utilizing system cost centers and project codes.
Revenue Recognition: Not using the correct revenue recognition creates a timing difference from the expenses directly causing fluctuations in gross margins.
4. How to improve your financial data
There are a few steps you can take to ensure that your data is as accurate as possible. First, you will need to fix the chart of accounts and ensure there is enough detail that can help your investors understand the specifics driving the business. Next, you will need to departmentalize your coding so that expenses are properly allocated to each business unit, department, and sub-departments. Finally, you will need to apply the correct revenue recognition. This will ensure that you are recognizing revenue in the proper period. By taking these steps, you can be sure that your financial data is as accurate as possible.
5. Beyond Financial Data
Financial reporting must be able to take into account other types of data that may be relevant to the company's financial situation. For example, data from human resources information systems (HRIS) can be used to help assess a company's labor costs, while data from customer relationship management (CRM) systems can provide insights into sales trends. Likewise, operational data from business intelligence (BI) systems can help managers understand where a company is incurring costs and where there may be opportunities for cost savings. By incorporating data from these and other sources into financial reporting, companies can paint a more complete picture of their financial situation and make more informed decisions about their future.
Financial data is essential for any business. It provides insights into metrics such as profitability, cash flow, and return on investment. Additionally, it helps to assess the performance of different parts of the business, such as marketing, operations, and product development. If your business needs help providing better financial data to investors, we are here to help. We specialize in providing accurate and timely data that can help inform your decision-making. Contact us today to learn more about how we can help you improve your financial data.