Financial reports for businesses can be prepared quarterly, every six months or annually. Below are reasons why it may not be advisable for you to ask your accountiants to prepare quarterly reports about the health of your business.
Less Innovation May Take Place
Research and development activities usually take a long time to yield tangible results. For example, it is hard to develop a new product for your business within a month or two. Quarterly financial reporting can lead you to reduce the resources that you allocate to innovation (research and development). This is because you may become obsessed with realising short-term goals. Such a mindset can prevent your company from attaining sustainable growth since less attention will be given to developing lasting products. Longer reporting intervals, such as annual financial reporting, can avoid this problem of stifling innovation at the altar of quick results.
The fortunes of most businesses keep fluctuating based on several prevailing factors. For example, net profits can reduce at a time when a major expansion drive has been implemented to enter a new market. Quarterly reporting can cause broad variations in the perceived value of your business. This can affect how attractive investors find your business if its shares are traded publicly. Accounting reports covering longer timeframes can remove some of that volatility.
A lot of work goes into preparing quarterly financial reports for a business. For example, each department of your business, such as the sales and marketing division, has to spend time providing the data that the accounting professionals require to prepare the quarterly report. Consequently, resources (personnel, for example) may be taken away from attending to core tasks of the business so that the quarterly reports can be prepared in time. Longer reporting intervals allow your employees to focus more on those activities that add value to the business, such as attracting new customers.
Clouded Decision Making
Quarterly financial reporting is also likely to drive you to make decisions that may not be in the best interest of your business. For example, the urge to report outstanding sales figures may drive you to supply a questionable entity with goods so that that volume of products can be captured in the quarterly report. Such a risk can result in losses if the client fails to pay. Longer reporting periods leave you to make the most appropriate decisions without feeling pressured to influence the data that goes into the reports.