Financial reporting is a challenge for a business of any size. For smaller companies with limited resources, the challenges can be massive. Limited resources, complex regulations, and evolving technology can strain any business that must adhere to complex reporting requirements.
The information below will give you an in-depth examination of what challenges small businesses – like yours – may face regarding financial reporting. We’ll also provide you with an overview of concrete actions you can take to meet all reporting requirements.
Limited Resources & Expertise
Smaller businesses often lack the resources and expertise to ensure they accurately meet any reporting requirements. The reason is relatively simple: Small businesses may struggle to afford the staff with the expertise and know-how to understand what reports are required and what data is necessary to complete those reports. Ironically, lacking the money to pay this staff may cost small businesses money. If your small business is found to be not complying with reporting requirements, you may get hit with a fine that will cost you.
You have two options to overcome this resource and expertise challenge. First, you can invest in staff pay and training to ensure you have the talent on hand to meet any reporting requirements. Alternatively, you can outsource financial reporting to an outside firm with the expertise and capacity to help you overcome these challenges.
Compliance With Regulations
Larger businesses have entire departments dedicated to ensuring that they meet reporting requirements and stay current with any necessary paperwork, reporting, and more. Smaller businesses, of course, lack those options and may not have access to the talent or software that can ensure they are compliant with all regulations.
When it comes to financial reporting, this can be truly problematic. Regardless of size, all businesses must meet certain federal, state, and local tax reporting requirements. Specific industries may also have financial reporting requirements, disclosure forms, safety reporting, etc. Ensuring compliance with these regulations means knowing what regulations apply to your business.
Practically speaking, your business must ensure compliance by:
- Determining what regulations are relevant to your business or industry.
- Identifying a source of news or information that can alert you to potential regulation changes.
- Working with financial or legal authorities to ensure you adequately meet any compliance requirements.
Choosing Appropriate Accounting Software
For some businesses, accounting is a simple way of downloading Quicken and keeping their checkbooks current. The matter is much more complex for businesses in other industries, as you may need accounting software that gives you more information and customization options. Depending on your business’s size and industry, you may need software that can automatically fill in any data necessary for reporting.
The way to overcome this challenge is to conduct needed research or ask other businesses like yours what accounting software they use. By selecting the right program, you can go a long way to ensure you meet necessary reporting requirements.
Outsourcing vs. In-House Reporting
Meeting necessary financial reporting requirements will leave a business like yours a critical choice: You can outsource reporting or hire the staff necessary to keep reporting in-house.
Each method has serious pros and cons, and this deserves adequate consideration. Hiring someone in-house will likely cost you more. However, having the staff on hand may mean that you have greater control over the end product. Additionally, you may be able to give your internal staff additional responsibilities that extend beyond meeting reporting requirements.
That being said, outsourcing your financial reporting may be less expensive. Doing so ensures you never have to worry about adequately training anyone internally. However, that’s not to say you no longer have any responsibility. Even if you outsource reporting, you must always keep a close eye on the final product: If an outsourced firm fails to meet reporting requirements, you may still be responsible for the final product.
Determining your business’s best path requires conducting a cost-benefit analysis. You’ll have to determine what talent you have access to, how much it would cost to pay that talent, and if it is truly worth bringing that service internally.
Implementing Internal Controls
Whether you keep reporting requirements internally or outsource them, you’ll need to appropriately implement financial controls that confirm data accuracy, ensure compliance, and monitor the final work product of any internal or external effort.
Fortunately, a series of internal controls your business can establish will allow you to confirm the accuracy of your financial reporting. These include:
- Implementing appropriate audit requirements that confirm the core accuracy of any financial numbers you are reporting.
- Using internal or external staff to audit any reports, thus providing you with a critical check on any additional work.
- Creating necessary policies and procedures to collect data necessary for reporting.
- Selecting software that can implement these policies.
Takeaway
As you can see, there are major challenges when meeting necessary financial reporting requirements. Overcoming these challenges is crucial for your small business, and doing so can ultimately determine your success at staying compliant with highly important regulatory issues.