Reporting provides a basic understanding of business performance and operations. In a business, a report provides important details regarding future forecasting, marketing planning, budget planning, and decision making.

In the article below we will explain Financial Reporting vs Management Reporting and what is the difference between them. Many business owners are already familiar with financial reporting, but many may not be familiar with the benefits of management reporting that can help their business increase performance, productivity, and profitability.

What are Financial Reports?

A financial report is a business overview that provides an overall view of the performance and financial position. Financial reports can be generated by analyzing business data and viewed by creating financial analysis dashboards.

If we look at financial reporting in accounting, business owners often distribute these reports to external stakeholders, such as banks, investors, and regulators, providing them with essential information about the business. Financial statements reflect financial health at a specific point in time.

Financial accounting reports include the following:

• Income statement
• Profit and loss statement
• Accounts payable
• Accounts receivable
• Statement of cash flows
• Balance sheet

What is Management Reporting?

Management reporting is an optional preparation for all firms. But if business managers use management reporting they can know its potential. Management reporting works on business areas. Such as profit and loss by category, department, job, or team as well as acquisition rates and utilization rates give you a look at operations.

To prepare a management report, data is collected from various departments of the company to track key performance indicators (KPIs) and present them intelligently.

Reporting to management shows the overall health of the company and provides an in-depth view of the company’s performance, allowing decision-makers to choose the right path to business success and maintain competitive growth in the marketplace.

Common management reports include:

• Sales reports
• Inventory report
• Departmental reports

 

Difference between financial reporting and management reporting

Financial and management reporting represent two essential processes for businesses, although they have several differences. From the image below you can easily see the difference between these two types of reports.

Importance of Financial Report and Management Report

Financial reports are very essential reports for your business as they focus on the finances of your business. There are many reasons to use financial reports in a business to measure the financial flows of your business. Business managers or business owners are always used to viewing their financial reports every six months. But if we talk about management reports, it is not so much needed for business and is also an expensive method. But we also don’t neglect that, if a company is willing to use the management reporting process in their business, they will boost business performance.

Every business needs a financial report to measure changes in financial values to maintain a low spending policy and increase profits. But to get business benefits, in the background we also need to add management reporting so that users can make an advanced decision.

Insights gained from management reporting and analysis are essential to making informed decisions that can be beneficial and profitable to your business. Management reporting also focuses on future data points which help in planning long-term future projects. Any organization would be interested in gaining more insight into the activities of the company as a whole, which leads to success, profits, and improved productivity.

Which reports are best for your business?

If we look at a long-term business success the answer is that both the reports are necessary but only the financial report is mandatory. Financial departments are used to prepare and develop financial reports by following regulatory guidelines. Whereas management reports do not work in the same way. If we see that company future management report also becomes a necessary step to follow. Insights gained from management reporting and analysis are critical to making informed decisions that steer your company in the right direction.

Tips for Choosing Between Financial vs. Management Reports

Both finance and management reports are suitable for conveying business information related to finance and operations. But they work differently for a different purpose. The points below help you determine which report you should use.

Determine your business condition:  Financial reporting represents a mandatory process, whereas management reporting is optional.

Let’s understand with an example, the Internal Revenue Service (IRS) requires a financial report to estimate your tax status, and financial institutions require this document to assess loan eligibility, so in this case, you should be mandated to generate a financial report for the system. While the Management Report is mandatory in this situation, you can postpone it for the future.

Define your scope: Use financial reports if you want to improve the financial health of your business and use management reports if you want to examine a specific segment of your company. You have to choose which report is suitable for a specific period.

Know your audience: Submitting financial information about your company to outside parties is required to comply with financial reporting standards and procedures. These guidelines ensure that you provide all required information accurately and consistently. However, if you only want to create reports to be used for internal purposes, you can use Management Reporting. While you still need to provide accurate information and relevant information to your audience, you don’t have specific guidelines to follow.

Determine your purpose: Financial reports work on historical data to present your company’s financial health and performance. These reports help in forecasting your business prospects but you cannot rely on them completely. But if you aim to develop a strategic plan then you can go with a management report.

Best Practices for Creating Financial and Management Reports

There are a few tips you always need to remember when creating reports. Reports are made for others to read and understand. Below we have discussed some of the key features for creating reports.

Eye-catching report: In a business, top-level managers and various stakeholders are often busy people. So, prepare a report keeping those people in mind. Never use heavy text, too much color in a report, it can give them a chance to get distracted. A well-crafted report helps them navigate and easily find what they are trying to find.

Use automation process: Automated reporting takes less time to generate reports and speeds up the report creation steps. By automation, the user can quickly deliver the request to the stakeholders or directors.

Use graphics and visual elements: Use appropriate graphics or visuals to explain the long text. Divide the block into sections that focus only on the topics represented.

Create multiple reports to address operations and finances from multiple perspectives:  With the time and cost savings of automated report creation, it is easy to create multiple reports that serve specific purposes for different strategic purposes. It gives stakeholders better, more specific information to guide decision-making on multiple fronts.

Conclusion

The health of the company depends on both financial and management reporting. In the above article, we have discussed the importance of financial and management reporting. We have also discussed how to do management reports and financial reports.

Therefore, whether you are preparing a report for internal or external purposes, always prepare your report in an easy-to-read format that will capture the user’s attention.

If you are looking for an expert in management reporting or financial reporting, we have the right solution for you. Get in touch with EzInsights to learn more.