Editor's Note: This is the third installment in a multi-arc series. In the ensuing installments, B2B CFO's Don King will address cash, financial performance, strategy and then pull everything together in a meaningful way. It is not all about spreadsheets, financial statements and bank loans. A company is an organization whose complexity changes as it grows. Some things become easier and others more complex. Recognizing and addressing these changes is the key to long-term success.
Financial performance and financial reporting are important for privately held companies, just as they are for publicly traded companies. Accurate financial reporting is important for privately held companies because it helps management make informed decisions, attract and retain investors, and comply with tax and regulatory requirements.
It also helps management monitor their financial performance and identify areas for improvement. The financial reporting package for a privately held company should include a full set of financials (Income Statement, Balance Sheet and Cash Flow), current and prior year comparisons and detailed budgets.
The review process should be robust and include variance analysis versus prior and budget numbers for the current month and year.
Having a meaningful and professional review process can instill confidence in the company and managements’ grasp on issues that impact the business.
Financial performance refers to how well a company is managing its resources and generating profits. Reviewing consistently prepared financial statements on a regular basis will enable management to measure the financial performance of the company through financial statements and related reports.
Financial reporting involves the preparation and presentation of financial statements and other financial information to the management team. While privately held companies are generally not subject to the same strict reporting requirements as publicly traded companies, they will likely benefit from accurate and timely financial information.
The financial review process which includes a thorough review of the financials and related reports helps management make informed decisions. Financial reporting provides critical information on the financial health of the business, including revenue, expenses, profits, and cash flow.
By reviewing this information over time, comparing current period and year to prior year and budget, management develops a thorough understanding of the current condition of the company and the direction the company is heading. This information is crucial in making informed decisions on business operations, investments and growth.
Many companies need access to capital. Privately held businesses often require funding to finance their operations, expand their business or invest in new projects. Financial reports, such as balance sheets and income statements, provide critical information for lenders and investors to evaluate the financial health and creditworthiness of the business.
Having accurate financial reporting can increase the chances of securing financing. Having a meaningful and professional review process can instill confidence in the company and managements’ grasp on issues that impact the business.
It is not uncommon for all companies, regardless of size, to be required to comply with regulatory requirements. Many businesses must comply with various legal and regulatory requirements, such as tax regulations, accounting standards and financial reporting requirements.
Financial reporting involves the preparation and presentation of financial statements and other financial information to the management team.
Accurate financial reporting ensures that the business complies with these requirements, avoids penalties and maintains its reputation.
Financial performance and financial reporting are important for privately held companies because they provide valuable information for internal stakeholders, help with decision-making and ensure compliance with regulatory requirements.
While privately held companies may not have the same reporting requirements as publicly traded companies, maintaining accurate financial records and reporting financial information still is crucial for their success.
Don King is a Partner with B2B CFO® Website: My Expertise Hub™. We provide Strategic Business Advisory Services to owners of privately held companies. We focus on increasing cash and company value. By redefining the way that these services are provided, we have created a new industry, which we dominate and lead. With a nationwide presence, B2B CFO® is the largest company of its kind in this industry.
Would you like to learn more on this topic? Register for Don's webinar — "A Strategy for Success for Privately Held Companies," where he'll provide an in-depth look at the things that mean the most and are most impactful to business owners:
- Cash — where does it come from and how is it used? Are we matching short and long term financing with short and long term uses?
Financial performance — a review of the Income Statement and Balance Sheet. How do the financials compare to related companies in the market?
Strategic View — where do we go from here? Where is the company in three, five, 10 years and how do we get there?