It’s an uncertain time for businesses. The pandemic has altered operations significantly and it’s been difficult to attain growth. It’s at this point where corporate transparency is crucial to retain the trust of banks and public credibility. Below, we explore what transparent financial reporting is, and the ways in which it’s important.
What is financial reporting?
Financial reporting is an accounting process where financial statements are released for anyone to see. This will include a company’s financial information and performance over a set period of time. It ties in neatly with transparency. A transparent company will provide investors with clear and easy access to the financial reporting on their business. This will usually involve information about audited financial reports.
Why is it important for businesses to be transparent?
It attracts investment
The global financial situation is precarious, and this has a few consequences. Growth is difficult for businesses, and financial institutions will be meticulously considered about what they invest in. In this climate, investment will only be made in businesses that can clearly offer strong returns. As such, it’s crucial to be as transparent as possible to get investment. Financial institutions will immediately be out off by anything ambiguous in a company’s financial reporting.
Having clear financial reporting also builds credibility for the business. Anyone taking a look at the company can see whether it’s solvent, and whether it’s in a healthy position. Unclear financial reporting, on the other hand, will make it look as though there’s something to hide. Often, ambiguous financial reporting will suggest that high debt levels are being obscured to alter the company’s public image. Therefore, with obvious financial reporting, a business will be able to show their credibility off.
Easier to receive loans
A high quality and truthful report is more likely to receive a loan. Usually, when offering a loan, a bank will look for collateral. This refers to a fixed asset they can seize from a business in the case of failed repayments – it safeguards their loan. Small and medium businesses often lack an asset that can work as collateral. However, with clear financial reporting a bank can see that there is minimal risk associated with the business, lessening the need for collateral. As a result, transparent reporting can act as a key step to securing that vital loan for the company.
With business growth slow and banks more reluctant to invest, a clear and transparent financial report is vital for gaining trust and investment. It can feel overwhelming arranging this for yourself though, especially if you lack financial experience. Arranging a detailed financial audit can help you display and maintain transparency though.