Many believe financial reporting and management reporting to be very similar, if not the same. However, whilst both reporting methods deal with numbers, they differ greatly in their purpose.
Both financial reporting and management reporting can reveal key insights about your business and help you make informed decisions. As a result, it’s important for businesses to take advantage of both reporting methods in order to boost company performance and profits.
Financial reporting and analysis are mandatory for all businesses and are mainly used for external purposes. The reports include the following:
These reports are important for banks, investors and regulators to approve loans, and credit and to ensure that you’re following accounting standards. Financial reporting reflects the financial position of a business at the time of reporting. However, they don’t predict the future or provide insight into specifics.
Management reporting is entirely optional and is for internal business purposes. Management reports aim to dive deeper into company financials and provide insight that enables more informed business decisions. These reports include:
Management reporting focuses on individual areas of the business, allowing you to identify areas that are strong and any areas of potential improvement. For example, you might want to see how well the sales department is performing one month before making the decision to expand. Management reporting for performance management enables leaders to rely on their numbers.
Management reporting enables CEOs to have data-backed decision-making and gain a deeper understanding of their business. If profits are lower than expected, management reports can pinpoint where issues lie.
Financial and management reporting are both hugely beneficial for businesses. However, they have very different purposes and methods:
Financial reports are important for a business to track its past performance and keep all income and expenses recorded. They are also a necessity and help when looking for loans or lines of credit.
Management reports allow businesses to make informed operational and financial decisions based on real data. Being able to look into specific areas of the business helps managers to improve their financial visibility and predict future outcomes. Making decisions based on data often leads to much better business results.
All businesses need financial reports in order to remain compliant with regulations. However, one of the main objections of financial reporting is to ensure that financial numbers are adding up and any cash flow problems are prevented.
Many businesses may see management reports as an extra cost, but the information they can provide is invaluable. In fact, management reports often save businesses money, as any costly business decisions that don’t benefit the company can be avoided. Better business decisions can be made thanks to management reporting.
