How to Make Financial Reports Easy for Stakeholders to Read

TL;DR: To make financial reports easier for stakeholders to understand, organizations should define accounting jargon, translate numbers into visual charts, highlight key performance ratios, and provide industry benchmarks. SD Mayer recommends simplifying complex data so board members and investors can confidently make informed business decisions.

Financial statements act as vital tools for evaluating performance, planning for growth, and managing risk. Yet, many business owners, board members, donors, and investors lack formal accounting training. Staring at dense spreadsheets can leave these crucial decision-makers feeling overwhelmed and confused.

Presenting financial information in a clear, approachable way solves this problem. When organizations communicate in plain language, stakeholders understand the results and feel empowered to guide the company forward. At SD Mayer, our team focuses on making financial clarity accessible to everyone. By implementing a few strategic formatting changes, you can transform your dense spreadsheets into compelling, easy-to-read documents.

Who needs to understand your organization's financial statements?

The people who rely on your organization’s financial statements come from diverse backgrounds. Some readers may have deep financial expertise, but others might not. You must keep this non-financial group in mind as you supply data.

This reality especially applies to nonprofits, charities, religious organizations, and social advocacy groups. These entities share data with volunteer board members, donors, and grant makers. For-profit businesses face a similar dynamic when sharing financial data with employees and external investors.

Do not assume all your stakeholders understand accounting jargon. Consider providing clear definitions of key financial reporting terms directly within the report. For instance, a nonprofit organization should explain that “board-designated net assets” refers to assets set aside by the board for a particular purpose. Examples include safety reserves or a capital replacement fund, which lack external restrictions imposed by donors or the law. You can also provide internal stakeholders with basic financial training by bringing in outside speakers like investment advisors and bankers.

How can organizations turn numerical data into helpful visuals?

Long lists of numbers often overwhelm financial statement users. Pictures and graphs offer an easier way for laypeople to digest numerical information from your income statement, balance sheet, and statement of cash flows.

Use visual aids strategically based on your specific communication goals. Choose a pie chart if you want to show the composition of your business’s assets. Select a line or bar graph if you need to communicate revenue, expenses, and profit trends over time. Additionally, dashboard-style reports help highlight key performance indicators (KPIs), operational metrics, and cash flow trends at a glance.

What key financial ratios should you highlight for stakeholders?

Financial ratios show relationships between key items on your financial statements. While ratios do not appear on the face of standard financial statements, organizations can highlight them when communicating results to stakeholders. SD Mayer advises calculating and highlighting the following metrics:

• Days in receivables ratio: Calculate this by taking accounts receivable divided by annual revenue multiplied by 365 days. Reporting this metric for the current and prior periods demonstrates your efforts to improve collections.
• Gross profit margin: Calculate this by taking revenue minus cost of goods sold, divided by revenue. This metric shows how increases in materials, labor, and operating costs have affected profitability.
• Current ratio: Calculate this by taking current assets divided by current liabilities. A ratio of 1:1 means an organization would have just enough cash to cover current liabilities if it ceased operations and converted current assets to cash.

It is also helpful to provide industry benchmarks to show how your performance compares with competitors. Choose benchmarking metrics if you need to give external context to internal performance numbers. Organizations can often find this benchmarking data through industry trade publications and websites.

Ready to transform your financial reporting strategy?

Clear communication strengthens trust in your organization’s financial reporting. It helps stakeholders feel confident about the strategic choices they make. SD Mayer serves as your trusted advisor to develop financial reports and presentations that improve understanding, transparency, and credibility. Contact SD Mayer today to explore customized solutions that help you save time, reduce costs, and increase profitability.

Frequently Asked Questions (FAQ) about financial reporting

How much time does it take to create visual financial dashboards?

The timeline depends on the complexity of your data. Implementing automated accounting software can generate visual dashboards instantly after the initial setup.

Who is responsible for simplifying financial reports in a small business?

Typically, the Chief Financial Officer (CFO) or an outsourced accounting firm like SD Mayer manages the formatting and presentation of financial data for stakeholders.

What are the risks of presenting overly complex financial statements?

Presenting overly complex financial statements can confuse stakeholders, leading to delayed funding decisions, a lack of trust from donors, or poor strategic planning by the board of directors.

What are the alternatives to standard balance sheets for non-experts?

Alternatives to standard balance sheets include visual KPI dashboards, summarized executive memos, and infographic-style annual reports that highlight cash flow and net asset changes visually.