Financial reports and management reports are both crucial parts of any business. Both reports help the owner to visualize the organization’s working performance. Both reports provide a full guide to creating a proper budget-friendly plan for the business. It helps to gain the trust of the investor, stockholders, partner, or customer in it. If you don’t have any idea about the financial and management reports, then you have come to the right place. Here in this blog, you will learn about the financial reports, the management reports, the difference between them, and why both reports are necessary for the business process.
What is a Financial Reports?
A financial report is a document that helps the owner to get a proper visualization of the business’s financial condition. This is mainly given by the owner to the bank for loan approval, investors, and stockholders to impress them. Using this report, the owner can get a proper idea of the profit or loss statement. They give a clear picture of a company’s money, including what it owns, what it owes, and how much profit or loss it has made over a period of time.
Key Component of Financial Reports
- Balance Sheet
- Income Statement
- Cash Flow Statement
- Statement of Changes in Equity
What is a Management Reports?
It is a full report of the working process of the business. It is mainly given to the accounting team to know the problem that is faced by the employee during production. This report helps to know which part of the production process needs improvement. This report mainly includes gross margin, value of customers, return on investment amount, checking report, and helps in managing the cash flow. Management reports directly give a proper report of the machinery and tools that are used for production. Management reports help the business update its tools and machinery to improve production.
Key Components of Management Reports
- Budget vs Actual
- Key Performance Indicators (KPIs) Reports
- Variance Analysis
- Departmental Reports
- Forecasting
Difference Between Financial Reports and Management Reports
It is really important to know the difference between the financial reports and management reports. Both of them have equal importance in the business. Both of them help to know about the problem that is faced in the production process.
| Basis | Financial Reports | Management Reports |
| User | Mainly investors, shareholders and government authorities. | Business manager, employee, accountant. |
| Reason | Help the outsider decide on investment in the business. | Help the manager make important plans for the project. |
| Focus | Mainly focus on the whole business. | Focus on detailed operational areas or departmental performance. |
| GAAP | It follows the GAAP(Generally Accepted Accounting Principles) format while creating reports. | No requirement to follow the GAAP format to create a report. |
| Report Making | Created at the end of the period. | Can be created at any interval of time. |
- Use of Report: Mainly, a financial report is for external use to attract investors, banks for loans, and partners to trust in it. But the management report is used by the owner to make important decisions for the benefit of the business.
- Performance Data: The financial report will help you know the total performance of the production process, whereas the management report will help to know which part of the production process needs improvement.
- Report Creation: Financial data is issued at the end of the period for monitoring the rules and regulations. A management report can be created at any interval of time to meet proper management needs.
- GAAP: GAAP stands for the Generally Accepted Accounting Principles, which are certain rules and regulations for businesses in the USA on how they create their financial reports. But the management report does not require you to follow the GAAP rule to create it.
How Business use Financial Reports and Management Reports?
Here we discuss how businesses use financial reports and management reports which are mentioned below.
Use Financial Reports
- Attract Investors.
- Secure loans.
- Track Profitability.
- Ensure Compliance.
Use Management Reports
- Make Informed Decisions.
- Identify Problems.
- Plan for future.
- Improve efficiency.
Importance of Financial Reports and Management Reports in Business
Both financial and management reports have an equal role in business to have a proper production process. Some of the importance of financial and management reports are.
Importance of Financial Reports
- This report shows how much a company owns, owes, and earns. This helps outsiders understand the company’s financial position.
- Clear and accurate financial reports build trust. Investors and banks rely on them to decide whether to invest money in the business.
- These reports show if the company is making a profit or loss, helping stakeholders evaluate business performance over time.
Importance of Management Reports
- This report helps in planning budgets, predicting future trends, and setting realistic goals.
- Management reports provide detailed information about sales and costs. This helps managers make informed decisions.
- By tracking performance metrics, these reports show which parts of the business need improvement.
Conclusion
This blog helps you get a detailed idea about why financial reports and management reports are necessary to solve any business problems. So that you can attract the investor, stockholder to gain more trust in the business. An accounting manager can also know the weak parts of the production process and take necessary steps to solve them properly.