Nowadays, digital agencies are reforming the story that the numbers reveal. However, the question arises why we need to update financial reporting for the digital era and why businesses need financial reporting services? Harvard business review has conducted interview series with multiple Chief financial officers of technological companies and investment analysts to get the answer to these questions.
It questioned majorly on two key aspects:
What makes the valuation of digital businesses more challenging?
How can digital enterprises enhance their financial reports to interact with sources of value building in their business?
The answers to the questions mentioned above have given seven powerful as well as useful insights that tell why businesses need to update financial reporting for the digital era and why they need to outsource financial services. These insights include:
In today’s era, you can’t consider accounting as a value-added creation
Many digital Chief financial officers (CFOs) now consider that traditional accounting practice is a hindrance. They may not invite accountants to the company’s strategy meetings. However, it is necessary to have regulatory reports and metrics and consider accounting as a value-building feature.
Analysts rely more on non-GAAP metrics
The analysts are now deploying less traditional ways to do the work. It is assisting them in changing the face of inevitable steps against the ongoing earning for reporting objectives. Now companies can offset R&D expenditure with more value-added features. They can also take assistance from outsource financial services to get more precise reports and metrics.
The need for financial reporting will not change any time soon
It would be correct to say that digital companies are admiring requirements for new ideas and manners in number crushing. However, there are a few chances to change anytime soon. The SEC and traditional proponents are still ruling over the standard. The standard remains the standard until dotcom 2.0 happens.
Corporate venturing is one of the essential things
Long-standing traditional businesses are massively disturbed by their growing digital counterparts. The magic corporate compound is either creating a venture capital wing to spend in change or buying a business with innovative skills. However, it endangers cultural division between the old guardian and “innovators.”
Investors’ keen focus is on the innovation as an idea rather than source of earning
Based on cash flow or projected earnings, it is becoming challenging to assess a company accurately. CFOs and analysts do not incline to disclose upcoming projects, as they often have specific risks. It possibly only raises the challenge in an actual valuation.
In the end, calculating best-case scenario series payoffs does not explicitly encourage faith in traditional market moguls or valuation competency in today’s businesspeople.
CFOs think that they have no reason to give any additional data beyond compulsory SEC disclosures, which they believe unnecessary, slow, and uninformative and might invite further scrutiny and litigation.
Businesses need to consider risk as a feature and not as a bug
It is not easy to analyze the digital industry, as it is a boom and bust game. Companies evaluate employees generally on their contributions towards the next potential marketing-changing idea. Digital firms go after home projects, even if it means striking out a little more often.
Risk is a desirable feature; it can look like blasphemy to anyone taking an introductory economics course. Strangely, investors’ risk aversion has fundamentally changed. Still, many investors seem to have resolved that the most successful companies have tens of billions of dollars of valuation.
Financial capital is virtually unlimited than human capital
Measures such as payback period, net present value, and hurdle rates all affect capital limitations. Chief Financial Officers in digital organizations allot HR like R&D experts more diligently than their monetary resources. They believe that they can always raise more capital.
Companies can use their stock or benefits to pay for purchases and worker wages. The CEO’s principal aim is not significantly to judiciously designate economic capital. Their focus should be to allot valuable scientific and human resources to the most promising projects.
The time has come for CFOs to reconsider the financial reporting model from the bottom. The trendsetters need to encourage disclosures related to value per customer, revenue outcomes, and R&D data deployment. Businesses should also initiate hiring outsource financial services and update their financial records.
Businesses interested in financial reporting services can contact FinAcc Global for best quality outsource financial services.