Financial Data Management: What it is and Why it Matters
Feb 09, 2023 MicroBilt News
Most businesses start out using cash basis accounting.
While this type of accounting is simple and does well for the beginning stages of business, accounting methods must change as a business expands. Owners of major enterprises must carefully track inventory, salaries, assets, investments, loans, etc.
Consolidating financial information is imperative when setting up smooth operations. There's a lot to know when it comes to financial data management, especially if you're new to the game.
Don't worry because we have all you need to know about financial data management below. Continue reading to set your business up for success.
What is Financial Data Management?
Financial data management (FDM) is defined as a set of processes and procedures that aid an enterprise in merging their financial information while keeping it in line with accounting rules and regulations. It's made possible with the right algorithms, reporting, and data visualization software.
As your company learns to better manage financial data, you'll gain greater confidence in knowing your company is keeping in line with all legal requirements. There will be a much lower financial and legal risk.
Large vs Small Businesses
While managing finances is crucial no matter the size of the business, there are some differences in financial data management between large and small businesses.
Large businesses focus more on the yearly fiscal reports. They'll look at their profits, spending, and income. Their volume of activity is much larger than that of a small, local business.
Small businesses focus more on bank account statements, credit ratings, and assets in financial data management. Due to their smaller volume of activity, accounting for a small business doesn't require as much expertise as that needed in a large enterprise.
If you're the owner of a small business, start practicing detailed financial data management now. You'll gain helpful skills you'll need as you grow. Hire a trusted accountant if it becomes too overwhelming.
4 Main Pieces of Financial Reporting
There are 4 main pieces of financial reporting you need to know as you learn to manage financial data. Having accurate reports for your investors and the government is crucial.
1. Balance Sheet
This piece of your report displays your company's commitment to honor your debt and financial obligations in comparison to the totality of your assets.
Make sure to record non-current assets such as the technology you're using and the employee furniture. Once those assets are recorded, make note of your current assets. These include stock inventory, accounts receivable, and liquid assets.
You'll also want to jot down non-current and current liabilities.
2. Income Statement
The income statement is the most important piece in financial reports. It's a detailed breakdown of the money your company earned or lost in a certain timeframe.
Your income statement's first subsection should include the gross loss or profit. Get this number by subtracting the total cost of goods sold from your income.
The second subsection should be the net profit or loss. You'll get this number by subtracting the operational costs from your gross profit. Operational costs include taxes, rent, and employee salaries.
3. Changes in Equity
This section reports equity changes, including the sources and amounts. Evaluate the changes by comparing the end of the financial period with the beginning.
A report on the changes in equity isn't typically required for monthly financial statements, but it should be included in annual financial reports.
4. Cash Flows
A cash flows section summarizes the ins and outs of cash in your business. This part of the report must include 3 main subsections.
Cash flow reports must include subsections detailing cash from a) operating, b) investing, and c) financing activities. Because poor cash flow is a major cause of business failure, being thorough when reporting is crucial. Catch a problem before it grows.
Components of Succesful Financial Data Management
Now that you understand the core pieces of a financial report, let's widen our perspective a bit to look at the components of successful financial data management. These FDM techniques, tools, and tips aid in business growth.
Your business can't afford to overlook proper documentation. As you create documentation, guarantee you're providing context around why certain documentation is created and how to use it.
Provide context around projects, especially if there are multiple people involved. Highlight the purpose of your projects, and make note of the software used to complete the project.
Invest in Storage
Having ample storage for all documentation and reports is crucial. Research available storage plans to find what fits best for your company. Find a storage plan that helps in record-keeping and preservation.
Depending on whether you're operating a large or small business, you'll have different needs for data storage. Think about the number of computers and hard drives involved. Compare optical storage to cloud storage in your search.
Large enterprises benefit from cloud storage. Working with a cloud storage provider boosts the efficiency of data analysis.
Use Data Management Software
Using high-quality, trusted financial data management software will work wonders for your company. This type of software will transform provided data into the answers you're searching for.
Find data management software that creates accurate analysis reports and secures all private information. This software should also work with both your external and internal assets to aid in creating a governance plan.
Improving Your Enterprise: Financial Data Management
Every business benefits from proper financial data management. FDM merges all of a company's financial information and ensures they're keeping in line with government rules and regulations.
Determine your company's critical financial needs in relation to whether you're a small or large business. Know how to write a detailed financial report, and use proper FDM techniques to ensure business expansion.
No matter your financial needs, Microbilt has you covered. We've been aiding businesses in assessing and managing risk for decades, and we're now a registered consumer credit reporting agency. Check out a full list of our services, and contact us today