Internal vs. External Reporting – Which is Best for Your Business?

 While the concept of reporting within a business is often considered to be little more than an administrative inconvenience, this can play a crucial role in the efficient running of your operation.

This applies to different components of your business too, from financial reporting to KPIs and development of employees within their job roles. In the case of finances, for example, accurate reporting enables you to leverage historical data and build more accurate forecasts in the future.

There are different types of reporting too, including internal and external examples. But what are the differences between these two types, and which is most important to your business?

What is Internal and External Reporting?

Internal reporting describes the compilation and analysis of financial information (or similar datasets) on behalf of key stakeholders within a particular business.

This will then be used by management and senior leadership teams to dissect issues or make informed decisions, most of which will be focused on growth and the strategic development that a company will take.

In the case of external reporting, this will see similar datasets and insights prepared for those that sit outside of the business’s everyday operations.

This will include shareholders and potential investors, while in the case of finances and tax returns, it may also include the sharing of accounts with an external auditor.

What are the Differences Between the Two?

As we can see, internal reports are only designed to be seen by individuals that work within the organisation, creating a scenario where more detail and potentially sensitive information can be included.

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Conversely, external reports can be viewed and accessed by any person or organisation outside of the venture, from shareholders and board members (who may not play an active role in the management of the business) to tax auditors and venture capitalists who are interested in making an investment.

Often, external reporting may be a legal requirement, especially in the case of tax returns or the creation of shareholder reports. This makes them a key component of business compliance, which is why external reports often take precedence over other types of processing.

However, internal reports can prove highly beneficial to companies, often by providing managers with critical information pertaining to performance and productivity. This can lead to more informed and data-driven decisions, which ensure that the business follows the correct course over time.

The Last Word – How the Two Types of Reporting Can Work Together

While internal and external reporting processes tend to be kept separate, these two types of reporting can work in tandem with one another to drive improved efficiency.

For example, carrying out regular internal audits of your company finances can lead to improved reporting processes over time, while highlighting discrepancies or inefficient spending that need to be addressed.

Such insights can be carried forward into external reporting processes and more accurate tax returns, which also enable you to optimise savings while remaining compliant.

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About the Author: Tad Fisher

Prone to fits of apathy. Music specialist. Extreme food enthusiast. Amateur problem solver.

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