Interim Financial Reporting: Why You Shouldn’t Wait Until Year End To Assess Your Company’s Financial Performance
How often does your company generate a full set of financial statements? It is common for smaller businesses to issue only year-end financials, but interim financial reporting can be helpful, particularly in times of uncertainty. Given today’s geopolitical risks, mounting inflation, and rising costs, it may be wise to perform a midyear check-in to monitor your year-to-date performance. Based on the results, you can then pivot to take advantage of emerging opportunities and minimize unexpected threats.
Benefits of interim financial reporting
Monthly, quarterly and midyear financial reports can provide insight into trends and possible weaknesses. It can be especially helpful for businesses that have been struggling during the pandemic.
For example, you might compare year-to-date revenue for 2022 against your annual budget. If your business isn’t growing or achieving its goals, find out why. Perhaps you need to provide additional sales incentives, implement a new ad campaign, or alter your pricing. It’s also important to track costs during an inflationary market. If your business is starting to lose money, you might need to consider raising prices or cutting discretionary spending. For instance, you might need to temporarily scale back on your hours of operation, reduce travel expenses, or implement a hiring freeze.
In addition, reviewing major categories of assets and liabilities on the balance sheet can help detect working capital problems before they spiral out of control, such as:
- A buildup of accounts receivable may signal collection problems.
- A low stock of key inventory items might foreshadow delayed shipments and customer complaints, signaling an urgent need to find alternative suppliers.
- Your operations might not be generating sufficient cash flow if your company is drawing heavily on its line of credit.
When interim financials seem out of whack, don’t panic. Some anomalies may not be caused by problems in your daily business operations. They might result from informal accounting practices that are common midyear but are corrected by you or your CPA before year-end statements are issued.
For example, some controllers might liberally interpret period “cutoffs” or use subjective estimates for certain account balances and expenses. In addition, interim financial statements typically exclude costly year-end expenses, such as profit sharing and shareholder bonuses. Thus, interim financial statements tend to paint a rosier picture of a company’s performance than its year-end report potentially may.
Furthermore, many companies perform time-consuming physical inventory counts exclusively at year-end. The inventory amount shown on the interim balance sheet might be based solely on computer inventory schedules or, in some instances, management’s estimate using historic gross margins. Similarly, accounts receivable may be overstated, because overworked finance managers may lack time or personnel to adequately evaluate whether the interim balance contains any bad debts.
Contact us to help with your interim financial reporting needs. We can fix any shortcomings by performing additional procedures on interim financials prepared in-house, or by preparing audited or reviewed midyear statements that conform to U.S. Generally Accepted Accounting Principles.
Join Our Newsletter
Sign up to receive exclusive newsletters with the latest information affecting you and your organization.
SHARE THIS POST