Financial Reporting vs. Management Reporting (and How to Dazzle Your Stakeholders with Both)

Management Reporting vs Financial Reporting, which matters more? Reporting of any kind provides, at a basic level, similar benefits to an organization, regardless of the kind of reports being created. These documents and visualizations of data are leaned on by business leaders when making strategic decisions that affect not just entire departments, but also the organization as a whole—especially when it comes to financial and management reporting and analysis.

At a publicly traded company, these reports are also relevant to shareholders when quarterly disclosures are made public. Reporting is essential to tracking performance throughout an organization, evaluating progress toward business goals, and ensuring that the right decisions are made to guide the company toward future success.

Financial reporting and management reporting both share this common ground, and they even have some overlap in the data used to generate them. But from a strategic point of view, these reports have crucial differences that need to be understood by both business decision makers and the finance professionals tasked with report generation.

Here’s a look at the differences between financial reporting and management reporting, as well as some guidance to help you maximize the value of these assets.

What Is Financial Reporting?

Financial reporting is primarily focused on rendering information for external purposes, such as providing information to regulators and other authorities. But financial reports can also be generated to inform internal strategy, although internal financial reporting documents will typically look much different—and feature different data—than the financial reports supplied to external parties.

These reports cover basic financial and accounting information related to your business, including P&L statements, balance sheets, accounts payable and receivable, and cash flow statements. These reports can cover various time frames depending on the purpose of the report, as well as the requests of the external parties. For quarterly reports to shareholders, for example, financial reports will cover a three-month time frame.

In many cases, financial reports are required to ensure compliance with certain laws or regulations. Or, if you’re applying for credit from a bank, these financial reports are requested to evaluate the financial health of your organization and determine your creditworthiness.

From a strategic perspective, traditional financial reports offer limited value in guiding decision-making because the data tends to be too outdated and too general to offer valuable insights for business leaders. Modern financial consolidation tools might be changing this dynamic, though, because real-time consolidation of data, as well as automated reporting processes, now makes it possible to create financial reports that detail the latest available financial data for your business.

What Is Management Reporting?

Compared to financial reporting, management reporting offers better visibility into your company’s performance and financial health—not just as a whole, but also across individual departments. Management reporting and analysis can provide greater depth of insights, including the ability to segment and analyze data according to a wide range of criteria and filters.

Similarly, the data featured in these reports is more specific to a company’s operations. Instead of general accounting data used to represent the company’s financial health, management reporting makes use of key performance indicators, including metrics used to assess a company’s return on investment (ROI).

Management reports are internal documents, and they almost always include information that is confidential and not prepared for public consumption. Regardless of whether you use other types of financial reporting to inform your business strategy, management reports will always be a central asset—and they will almost certainly outweigh financial reports in terms of the influence they have on your strategic decision-making.

When it comes to creating management reports, it’s important to make sure they are collecting information that is relevant to a business decision maker. Whereas financial reports are inherently simplistic in terms of the data they render, management reports are more open-ended. It’s impossible to include all of an organization’s business data in a single report, so reports must be generated with information that is relevant to the subject of that report.

If, for example, you’re a sales leader looking to demonstrate your department’s ROI success over the previous quarter, you need to create a management report that features only information that is relevant to the subject of your presentation. The task of choosing appropriate data will play an important role later on, when we discuss how to create reports that your stakeholders will love.

Management Reporting vs Financial Reporting which one to use?

The short answer is both. Financial reporting is an essential process for enterprise organizations. Like it or not, your accounting professionals must make sure these reports are developed and made available according to existing regulatory guidelines.

Management reporting isn’t required in the same way. But as far as your company’s long-term success is concerned, it might as well be a mandatory process. The insights gained from management reporting and analysis are crucial to making informed decisions that steer your company in the right direction.

Management reports can also feature more future-focused data points that support scenario planning and other long-term forecasting. Any well-run business will be eager to get its hands on this information to make smarter decisions that support efficiency, productivity, and fiscal responsibility.

Best Practices for Creating Financial and Management Reports

When it comes to Management Reporting vs Financial Reporting, there’s a difference between creating a report and creating a great report that offers value to key stakeholders. Reports are created to be read and understood by others, so it doesn’t hurt to put extra effort into making sure these reports are going to make a strong impression on their target audience.

With that in mind, here are some best practices for creating high-impact financial and management reports:

• Create reports that offer eye appeal. Key stakeholders are people—and they’re often busy people. Dry, text-heavy reports can risk losing their attention, or frustrating them as they search for the information they need. A well-designed report can make it easy to navigate this information to quickly find whatever they’re seeking.
• Use automation to build reports with the most recent available data. Automated processes are a great way to speed up the report-creation process. The less time it takes for reports to be created, the faster they can be delivered when requested by stakeholders—all while featuring the latest available data, thanks to real-time consolidation of data pulled from across your organization.
• Integrate graphics and visual elements to improve comprehension. Break up large blocks of text with graphics and other visuals that serve as a focal point, help organize content, and provide a visual representation of important or complex information.
• Make reports more accessible with point-and-click design. Using a dedicated designer is nice, but it also takes time that slows down report creation. With point-and-click design, financial team members can generate reports and deliver them on a tight timeline.
• Create multiple reports to address operations and finances from multiple perspectives. With the time and cost savings of automating report creation, it’s easier to create multiple reports that serve specific purposes for different strategic objectives. This gives stakeholders better, more specific information to guide decision-making across multiple fronts.

With these best practices in place, you can create reports that not only fulfill reporting obligations but also deliver more value to your entire organization.

Conclusion

Financial reporting and management reporting are both necessary to the financial health, and well-informed leadership, of any business. But there are a wide range of potential outcomes when it comes to generating reports that meet their objectives and deliver the right information to key stakeholders.

Whether your reports are being generated for internal or external use, or to inform regulators, banks, shareholders, or business leaders with the latest information regarding the company’s finances and operations, it’s smart to create reports that organize information in a visually friendly, easy-to-read format.

Ready to see how insightsoftware’s reporting and analytics solutions can support your business operations? Request a demo today.