In an ideal world, financial reports should increase shareholder trust by providing factual information about the company’s performance. In actuality, a company’s financial report can be more flimsy, with leadership estimates and judgments that are far from accurate.
Valuations are a prime example of a flaw in financial reporting. Companies have gone public in the past based on exaggerated valuations and deceptive narratives. WeWork expected to offer shares to the public at a $47 billion valuation. However, due to financial mismanagement disclosed in the company’s S-1 registration, the valuation swiftly plummeted, and WeWork backed out of the IPO. It’s no wonder that when things like these happen, shareholders and investors lose faith in financial statements.
Start with the data if you want to build shareholder trust. You’ll be in a better position to persuade shareholders about the company’s health if you have precise and clear financial data. Move away from spreadsheets, which are prone to errors, are inefficient, and are often a hindrance, and toward technology that allows you and your shareholders to trust the figures.
Produce Comprehensive, Transparent Reports
Transparency is critical for establishing shareholder trust, as the Enron scandal vividly demonstrates. To deceive regulators, the company’s leadership exploited fictitious holdings and off-the-books accounting techniques. Enron’s stock price plummeted from $90.75 at its height to $0.26 at the time of bankruptcy, leaving stockholders with worthless equity.
Build shareholder trust by creating high-quality, detailed financial reports that inform decision-making.
When preparing financial statements and annual reports, keep in mind the informational needs of investors and shareholders. To compare the company’s financial performance to the previous year, shareholders look at the balance sheet, income statement, cash flow, and financial ratios.
Extend the level of detail in financial statements beyond what is required. Provide mandatory information on the company’s current and future financial position, such as any account changes, errors, asset retirements, and insurance contract changes. Include notable events and transactions that aren’t required to be disclosed but have a major financial impact on the company.
Structure the facts in your financial report so that shareholders can comprehend the company’s financial status and performance.
- Include essential accounting policies with the necessary items in the notes.
- Important disclosures should be prominently displayed in your reports.
- Ensure that pages and labels allow for easy cross-referencing so that users can find the information they need.
Guarantee Data Accuracy Through Integration
Shareholders rely on financial reports that are both comprehensive and reliable. Companies must consider variables that can contribute to erroneous data to build shareholder trust.
One factor is the size of the company. The more complicated a business structure is, the more difficult it is to collect and integrate data while adhering to the holding company’s reporting criteria. The yearly reports and financial statements frequently reflect this complexity. A major conglomerate with numerous business lines, for example, will generally find it more difficult to keep its financial records accurate than a corporation that focuses entirely on one field.
Data inaccuracy is exacerbated by human error, especially when numerous business units are involved. These errors are frequently caused by a manual entry in spreadsheets, but they can also be caused by each corporate entity’s use of various reporting tools and formatting.
Data silos occur when data tools are not integrated. There is no simple way to validate the data, which frequently leads to data inconsistencies and inaccuracies.
How can you build shareholder trust and ensure data accuracy when reporting for a complex business? Centralize your data.
Centralizing data eliminates data silos by integrating all information into a single, shareable source. This minimizes the amount of time spent bringing together and comparing competing data sets and reduces the inefficiencies caused by inaccurate or incomplete data. One version of truth results in a shared set of conclusions – the right one.
For finance teams, the best tool out there for centralizing data is Datarails. Their technology not only consolidates and stores all data on a cloud-based centralized database but supports collaboration and data integration across the business. Professionals can easily understand where their numbers come from and trust that they’re accurate. They can count on one version of the truth, and trust that it’ll help them make the right decisions.
Even with integrations, it’s a good idea to have a discussion with your team about how to correctly handle the data that will be fed into your FP&A platform. Maintain accuracy by determining which stakeholders are in charge of overseeing data from various sources. Agree on data preparation time frames so that information is accessible ahead of time and there is ample time for closure and consolidation.
Build Shareholder Trust by Providing Current Insights in Minutes
Your financial statements should be structured to increase shareholder trust, which entails minimizing cycle times and speeding up your reporting process. Manual, Excel-based processes aren’t set up to engage shareholders and investors rapidly with financial reports and forecasts.
You can save hours for your finance staff each cycle and give accurate forecasting for your shareholders in minutes with FP&A solutions that have the most modern functions.
