Nowadays, business owners mainly know about the financial reports that they receive on the monthly basis. But there are many types of management reports available in the market which will help the business owners to earn more profit and get better business results. Both financial reports and management reports are used to record numbers. Successful business owners study both the reports to get a complete knowledge of the status of their business and what are the necessary steps that should be taken in the future.
Today in this article we will make you familiar with financial reports and management reports and show you the main differences between them. You should read the article till the end, this will make sure that you know the difference between financial reports and management reports in a proper way.
What is Financial Reporting
Financial reports are mainly used by external users. Financial reports mainly record the financial data and statements in order to share them with external users outside the company. Public companies have to follow some rules and regulations set by the “Generally Accepted Accounting Principles (GAAP)” and “Securities and Exchange Commission (SEC)” while making the financial reports. Financial reports include a chart of accounts. You have to follow some rules and procedures to record the business transactions in these charts of accounts. You have to record the transactions and financial statements for a particular period of time in order to show the financial status of the company for a particular period of time.
While you are making the financial reports, you have to track accounts receivable balances and you have to also create invoices. The main aim of financial reporting is to show the business’s financial health to other external users such as industry officials, investors, and financial institutions. “Financial Accounting Standards Board (FASB)”, “International Accounting Standards Board (IASB)” and “International Financial Reporting Standards (IFRS)” have set some standards of the financial health of any business. The third party use the financial reports of any business to determine and match the financial health of that business with the standard financial health set by those organizations.
The things that are included in the records of financial reports are as follows
- Statements of Profit and Loss earned by the company
- Statements of Income of the company
- Accounts receivable statements
- Accounts payable statements
- The profit, and cash flow statements of the company
- Balance sheet
What is Management Reporting
Management reports are mainly used by internal users only. While making the management reports you don’t have to follow any rules and regulations of GAAP. Management reports use the segments of the business. When you focus on the segments of your business, it will help you to know the financial status of your business more deeply. Management reports have many types such as profit and loss by Class, Department, job, etc along with realization rate and utilization rate will help you to know the financial status of your business more deeply. The management reports will help you to know about the work done by the marketing department for a certain period of time and you will be able to figure out how much profit one sales team member earns in a certain month.
You can look at the reports of the last 6 months and if you find that the revenue is down overall, then you can ask your staff and team members to increase the revenue by increasing the territory of your sales and by involving more salespersons. Management reports are mainly used for C-suite executives which will help the owners to know about the crucial parts of their business and thus make correct reports which might help them to make good business decisions.
It is not easy to manage company financial resources effectively, but we can handle them easily. We just need to consider all the reports of the company. The things that are included in the records of management reports are as follows
- Departmental Reports.
- Inventory reports.
- Reports of the sales of the business.
If you don’t receive the management reports every month, then you will not be able to know the records and data which might help you to grow your business and also increase its success rate. Thus management reports are very much essential to make data-based decisions for your business which will give better results in the long run.
Financial Report Vs Management Report
Now let us have a look at the main differences between financial report and management report:
| Functions | Financial Reports | Management Reports |
|---|---|---|
| User Types | External users | Internal Users |
| Focused On | Business Finance Data | Business Finance & Operational Data |
| Provided Information | Whole Info about the Company | Particular Info regarding management |
| Need | Mandatory to Use | Not-necessary (Optional) |
| Used For | To determine the profit of the company | To track business expenses more efficiently |
- Business owners use financial reports for external users only and look backward.
And the business owners use the management reports for internal users only and look forward.
- The financial reports of a business mainly focuses on the financial data of the business.
Whereas the management reports of a business mainly focus on both the business’s financial and operational data.
- The financial reports of a business mainly gives you information about the whole company.
Whereas the management reports of a business mainly give you information about the needs of the management.
- The management reports of a business are not mandatory to run a business. The owners can select and choose the information they need to run the business.
But the financial reports of a business are mandatory to run a business that is publicly held. The business owners have to provide financial reports to external users.
- The business owners use management reports and management accounting in order to track their business expenses more efficiently.
Business owners use financial reports and financial accounting in order to determine how profitable their company is.
Wrapping Up
We hope that now you completely know about financial reports and management reports and also know the differences between them. Just follow all the points carefully, the guidance provided in this article will definitely help you to know about financial reports and management reports and also know the differences between them in a hassle-free method. We will recommend you to read the entire article and follow all the points without skipping a single point. If you need the complete guide