5 Ways to Improve Financial Reporting

The Overlay Team
7 min

With the death of traditional financial reporting, it's time to shift the way we act on mass amounts of data. Making a change at the executive level is critical to create transparency across the organization and in the way you report financial information to private equity firms and investors.

Given the accelerated transformation of economies, increased global market interdependence, and shifting customer expectations, the role of CFOs and finance executives is shifting from previous expectations.

The future of financial reporting and analysis is built on the backdrop of clear, well-stipulated responsibilities — especially for the modern financial executive. While providing greater insight and finding ways to lower costs were viable functional requirements for CFOs in the past, today's market calls for leaders to play much more dynamic roles.

This is especially true if a company is expected to achieve sustainable, long-term growth and value creation over many years. Here, we break down five ways to master the changing functions of finance executives towards the improvement of financial transparency.

5 Ways to Improve Financial Reporting

  1. Be a catalyst for growth in your organization
  2. Develop a shared repository of financial facts and figures
  3. Standardize your data, rather than relying on data science
  4. Build a financial reporting structure that's able to go deep and keep it high level
  5. Support compliance-based reporting

The Roots of Financial Reporting in the US

In order to understand where we're going, it's important to have a sense of how we got here. Until the 1980s, bookkeeping and accounting were done by hand on paper ledgers. This required a great deal of conciseness and efficiency. After all, the ultimate goal was to create compliance-based financial statements.

Fast-forward to the advent of financial software we have at our disposal today. Large enterprise resource planning (ERP) solutions dominate the market, designed to achieve the same goal as those paper ledgers. Despite the introduction of modern ERPs, the preparation of financial statements remains a time and energy intensive exercise for businesses.

A poll conducted by CFO.com in 2018 estimated that even with leading ERPs, periodic financial close takes a company, on average, over six days. True to its roots, financial reporting has largely served as a compliance function with little utility to executives seeking to better understand their business.

55% of finance leaders are not confident they can identify financial errors before reporting results.

US private equity firms are sitting on over $150 billion in unused capital

This was the latest estimate by PwC Deal Sector Leader John Potter. In other words, private equity firms are sitting on a whole lot of dry powder, just waiting for the right
opportunities to invest as they arise.

It’s a new era of low-interest rates, excess private capital, and heavy competition. And a premium is being placed on a fund’s ability to quickly and efficiently highlight opportunities for improvement and investment.

With a need to serve reports to auditors, lenders, investors, and other financial professionals, traditional reporting remains opaque for those who don't live in the trenches of Excel and BI tools. Couple these challenges with the ever increasing time and complexity to get to compliance-based statements and it becomes obvious that yesterday’s financial reporting may not suffice to meet tomorrow’s needs.

Modern finance executives can pave the way to improved financial reporting. Here's how:

1) Become a catalyst for steady growth in your organization

The future of financial reporting and analysis relies on the adaptive performance of finance executives. The payoff? Steering an entire organization toward more efficient models can set your business on a path to sustainable growth.

Clear examples are seen in the divergent fortunes of Apple and Kodak. While one business was on a sustained decline, the other was at its peak. In retrospect, it's hard to deny the eventual reversal of fortunes for both hinged on finance executives identifying and embracing new industry-wide trends and data.

Such incidents highlight the fact that the behavior and performance of finance executives should be well-calibrated and aligned with industry-wide trends. This enables an organization to function smoothly. And to adapt to market changes most effectively.

Being prepared for market shifts should go beyond adopting the best new technology. Finance and executive leaders should also be involved planning resources, implementation and scaling. Modern solutions and data analytics platforms can help CFOs and their teams dive deep into every aspect of a business’s finance operations. Asking the right question to remove doubt and roadblocks from decision-making is step one.

2) Develop a shared repository of financial facts and figures

The most ideal approach to financial reporting is to develop a shared repository of financial facts and figures.

This data is critical to have on hand for investors, regulators, and other stakeholders. Yet, achieving such transparency is rarer than most realize. According to PWC, top-performing finance teams take nearly a week to produce their financial forecast while underperforming ones take up to 19 days.

The use of sophisticated tech solutions not only helps finance leaders automate repetitive tasks. It also provides sufficient time to make well-informed decisions. Remember, your BI tools are only as strong as the data going into them, so make sure you’re automating and standardizing to reduce errors.

Financial analytics tools your business should be using

  1. Enterprise Resource Planning (ERP): An ERP automates business processes and provides insights on your financials, operations, reporting, and more.
  2. Business Intelligence Tool: A BI tool collects and processes large amounts of unstructured data from internal and external systems.
  3. Secure Data Warehouse: A secure data warehouse (such as Snowflake) stores your data in a safe location, helping to manage cybersecurity risks within your business.

3) Standardize your data. Don't rely on data science.

Can you track and consolidate your raw, transaction-level data from all of your different systems? If you’re like many, this road to simple trended, period-based reporting is fraught with obstacles.

It may take your data science team upwards of two weeks to extract data from your financial systems, normalize it, and provide the insights or dashboards you need for KPI reporting — just in time for the next board meeting.

Or perhaps you’re paying power by the hour consulting firms to do the heavy lifting for you. In either case, even with a vast arsenal of tools at your disposal, the result is the same: delayed decision making. This is especially problematic when trying to make critical decisions based on multi-location transactions and activity.

Using financial ERPs such as NetSuite and SaaS applications to capture operational and sales data, financial executives are in a unique place to lead the charge when it comes to accelerating business growth. Whether that be through portfolio management, material and resource planning, or 4-wall economics.

Systems such as OverlayAnalytics are able to automate the extraction and transformation process of raw, transaction-level data into digestible business logic for reporting and analysis. This leaves you with consistent executive dashboards that you can rely on now, not two weeks from now.

4) Build a reporting structure for macro and micro insights

The future of financial reporting will require CFOs to build closer relationships with investors by speaking their language, which is transparent, intuitive reporting. This means executive leaders will need to establish a deeper level of financial reporting that shows both the bird's eye view of business performance, as well as granular reporting. Finance tools such as ERPs are useful when it comes to collecting and compiling data. Sufficing a need for in-depth data analysis is another story.

70% of financial executives lack confidence in the data used to make their financial forecasts

Meanwhile, with increased competition for capital, investors are moving more towards robust, flexible, and scalable reporting tools. In other words, to be at par with investors’ needs, finance leaders need to be both mindful of the level of transparency demonstrated and of the availability of adequate, deep reporting that users (both internal and external) want.

5) Support Compliance Based Reporting

As the scope of the finance industry expands into new territory, so does the depth of regulatory requirements. This topic may be a fairly dry one to consider, but it’s crucial for growth and reputation management. Especially when dealing with private equity firms.

Whether it's misreporting or an oversight of new compliance regulations, finance executives will often be the ones to bear the burden of finding an immediate solution as the reputation of an organization is affected. These risks increase as more companies expand their operations across various jurisdictions on a global scale, and is not a consideration you’ll want to keep on the backlog indefinitely.

Afterall, financial reporting hasn’t kept up or evolved much over the last century. Now, it can become a legal risk when doing new business or attracting new investors. For this reason, it's time to consider tapping into emerging tools that retool financial analysis to be more consistent and transparent for the C-Suite, while simultaneously supporting compliance-based reporting.

Preparing for the Future of Financial Transparency

There is an incredible need to continue pushing the boundaries in the move towards the future of financial reporting.

The world of finance is changing faster than ever before. Given the rising level of data produced by today's modern organizations, coupled with the increased need for interoperability, and the rising scope of regulatory compliance measures, finance leaders will benefit by adopting new long-term solutions. There will undoubtedly be challenges that emerge with embracing any type of change. However, it's worth adopting new strategies now that enable you to prepare for the unexpected in an increasingly competitive business landscape. Embracing forward-facing solutions and roles can help business leaders grow their organization with confidence, while increasing accuracy, transparency, and compliance.

The Overlay Team

Gain a reliable view of your financial performance, no matter how complex the data. Overlay standardizes the metrics that matter to your business.