If you’re in the rental business, especially in the equipment rental space, you need to make careful financial decisions. The more rentals you offer, the more complex and time-consuming your finances can become.
To start, you must keep track of profits and losses, invoice customers, and make sure your financial obligations are met. Plus, you’ll have to file your tax return and make forecasts for future growth.
Financial reporting makes it easier to do all of the above, while also helping you get ready to attract potential investors. In this post, we’ll explore the key benefits of financial reporting and look at best practices to help you make better business decisions for your rental company.
8 key benefits of financial reporting for rental businesses
Financial reporting provides valuable insights into your financial health. The core financial statements give you a comprehensive snapshot of your finances, from income and expenses to capital and cash flow. Here are the main benefits.
1. Supports efficient cashflow management
Cashflow is the amount of cash that moves in and out of your business on a daily or monthly basis. The cash flow statement shows how much cash your business generates and what you’re spending it on over a certain time.
Tracking the sources of your cash and your expenditure helps you to assess the company’s financial performance. Positive cash flow shows that you’re in a position to pay your expenses. It proves you have the flexibility to meet future challenges.
2. Improves equipment fleet management
Finance reporting also helps you keep on top of fleet management for your rental equipment. You need to monitor the cost of maintenance and see if there’s money available to buy new assets. This will help you to set appropriate rental fees.
Analyzing these finances is also important for keeping track of the assets you have. It guards against costly loss of equipment and inventory errors.
3. Builds investor and lender confidence
When you’re hoping to raise capital, or planning a merger or acquisition, financial reports are crucial. Potential partners and lenders will want to see that your rental business is profitable, stable, and credit-worthy.
For example, a bank will need to review your financial activities before giving you a loan or a business credit card. Financial reports also demonstrate your strength to current partners, suppliers, and customers.
4. Optimizes invoice and transaction processing
A rental business might handle hundreds or even thousands of invoices and transactions per week. It can get overwhelming—but the faster you send out invoices, the faster you’ll get paid! Regular finance reporting brings extra efficiency to the invoicing process.
In parallel, you’ll also need to make sure that all your staff get paid timely and accurately. This includes handling invoices from freelance vendors and consultants. If you want to retain the best talent in the rental industry, you’ll need to pay them timely and accurately.
As a busy rental business manager often on the go, things can get complicated and invoices may slip through. To this effect, you could use an HR mobile app. This will help you keep an eye on all your invoices wherever you are, enabling you to pay your staff on time.
5. Provides accurate forecasting and growth planning
Financial analysis helps you to create accurate forecasts for the future of your business – especially with real-time data. You can spot seasonal trends and patterns, identify new opportunities, and look out for potential risks.
For instance, by assessing recent performance, you can decide whether the time is right for expansion. Or if the cost of maintaining assets is creeping up over time, you might want to sell some of them.
6. Enables asset liquidity and risk assessment
Could you convert your liquid assets (equipment) into cash without losing money? Financial reporting tells you whether the business can use its current assets to meet financial obligations. This is something potential investors will want to know.
Financial reports also help you spot errors and discrepancies in your processes. This reduces the risk of delays, security issues, or fraud. You can use analytics to predict market fluctuations and supply chain problems.
7. Maintains rental business tax and regulatory compliance
Most of your finance-based reporting will be for internal use, but some are required by law. As with all other businesses, you’re obligated to file tax returns to bodies such as the IRS or HMRC. You may also need to submit your records to industry regulators.
Accurate and regular financial statements help you get ready for tax time. This means you’re neither underpaying nor missing out on deductible expenses. Remember that most countries have different tax regulations governing accounting for self-employed or sole proprietors. So, make sure you do your research in due time before tax season.
8. Aids in rental industry benchmarking for competitor insights
Benchmarking is when you compare your company’s performance against your rivals or established industry standards. Using available financial performance metrics, you can make short-term predictions.
Financial reports are a key part of this process. If your business is underperforming, you can look at what competitors are doing differently. Based on what you discover, you can make necessary adjustments.
Best practices for creating financial reports
So, now you know why the financial reporting process is so critical. But how can you get it right?
1. Streamline processes by integrating automated tools
Automation is essential for maximum efficiency, while integration brings your favorite tools together for ease of use. For example, the all-new combination of Sage Business Cloud Accounting and EZO is ideal for rental management companies.
Once you’ve integrated your EZRentOut account, every rental transaction, invoice, and payment record is automatically synced with Sage. You can track invoices, expenses, and cash flow. And it’s easy to see payments paid, pending, or overdue.
2. Verify data for accuracy and consistency
The consequences of getting your figures wrong can be severe. For one thing, you might overestimate the amount of cash available to spend. You might follow an inaccurate forecast. Or you might end up accused of financial fraud or underpaid taxes.
You must verify your data before financial statements are signed off. Real-time dashboards enhance visibility, while the bank reconciliation process helps you spot discrepancies. Automated financial processes also reduce errors.
3. Maintain prompt financial reporting
All companies carry out finance reporting at the end of the fiscal year, but it’s best to do it more often than this. Regular internal reporting helps you stay organized, rather than frantically hunting for information at the last minute.
You’ll also be ready whenever someone (such as an auditor or investor) wants to see your statements. And you’ll be able to analyze the situation at any time.
4. Make reports accessible for all stakeholders
Not all stakeholders have the same level of financial understanding, so make your reports as user-friendly as possible. Use simple language, and graphical representations, and highlight key findings in bold. Add a summary of the key takeaways at the end.
You should also provide accompanying notes for financial statements, which help people to interpret the data. You might also decide to publish some financial information on your website as a press release.
5. Perform comparative assessments
It’s important to compare your current performance with that of previous reporting periods. This includes cash flow, revenue, and expenses. The income statement in particular is a good indicator of comparative fiscal health and likely future performance.
This assessment shows you any variations in data so that you can investigate the reasons and make changes where necessary. As we mentioned, it’s also best practice to compare your business to its competitors.
6. Conduct a thorough cash flow analysis
Without positive cash inflows, you won’t be able to pay staff or bills. You can’t invest in more rental equipment, or otherwise grow your business. And you won’t be able to pay your investors back.
That’s why a thorough cash flow analysis is so important. By looking at the movement of cash over a while, you’ll know if you can afford upcoming expenses and planned purchases. You’ll be confident that there’s enough in the pot for unexpected challenges and opportunities.
Conclusion
It’s not hard for rental business owners to see the benefits of financial reporting. Financial statements help you to stay on top of cash flow, enabling you to plan investments and prepare for unexpected costs.
You can make informed decisions on business expansion or liquidating assets, and prove your financial integrity to potential investors. Finance reports are also useful when you’re balancing a budget or setting rental fees, and they help you identify problems and optimize financial processes.
The integration of EZRentOut and Sage Business Cloud Accounting combines two essential tools for taking control of your rental business’ finances.
FAQs
What is financial reporting?
Financial reporting is an accounting process in which a business shares its financial data with internal and external stakeholders. This includes investors, lenders, shareholders, and senior management. The key elements of reporting are the balance sheet, income statement, statement of cash flow, and statement of changes in equity.
What’s in the reports?
- Income statement: This shows revenue, expenses, and net income during a stated period, and enables comparison to earlier fiscal periods. It’s sometimes called a Profit & Loss Report.
- Balance sheet: This shows your financial position at a certain moment in time. It lists your assets (cash, buildings, equipment) and liabilities (money you owe, such as loans). It’s used to gauge the company’s net worth.
- Cashflow statement: This is a summary of cash-based incomings and outgoings over a stated period. It categorizes the sources and uses of cash and also shows your liquidity.
- Statement of changes in equity: Also called a statement of shareholders’ equity, this tracks changes in retained earnings after you release dividends to shareholders.
- Notes to financial statements: any helpful information for the reader, such as how the figures were calculated.
- MD&A: The management’s discussion and analysis, which takes the form of a narrative.
What’s the purpose of financial reporting?
Financial reports provide a complete picture of your fiscal health at a given time. They reveal valuable insights that help you make strategic decisions and forecasts, and assess growth potential. You can use them to compare against past performance and your competitors and mitigate any dips in performance.
Financial statements are important for risk assessment, debt management, and compliance with regulatory agencies and accounting standards. They demonstrate financial stability to stakeholders and potential investors or lenders.
