Educational institutions already have plenty of administrative tasks, so financial reporting can seem like a chore. However dealing with income statements, balance sheets, and cash flow statements is essential for any organization with big financial decisions to make.
The key is to keep things simple. If your data collection processes are chaotic and your reports are confusing, you won’t have a clear picture of your financial health—which could mean gaps in funding for educational programs.
In this post, we’ll explain the importance of simple financial reporting in an educational setting and offer 10 top tips for making it happen.
Why do educational institutions need financial reporting?
Financial reporting isn’t something that’s only done by commercial businesses. In an educational setting, it’s equally important to document your financial activities over a given period. Financial reports have a variety of internal and external uses.
Externally, you’ll need to share your financial reports with anyone who uses or funds your institution. You may be required to submit financial information to regulatory agencies, and you’ll need it for grant applications or seeking any form of funding.
Internally, you’ll use financial reports for comparing your budget with what you actually spent, and for setting your budget for the next period. You can use them to track incomes and expenses to identify inefficiencies and cost-saving opportunities.
Financial reporting importance also extends to strategic planning and decision-making. By analyzing trends, you can evaluate performance and financial health to forecast future outcomes, identify risks, and target specific areas for improvement.
Reports also show how well you’re aligning with your goals, both financial and educational. You can combine this information with performance data to see the impact of your financial decisions. And you can compare current reports against those from the same time last month or year.
As well as communicating essential data, sharing financial reports demonstrates transparency and accountability, enhancing trust in your institution. They show that you’re complying with standards like GAAP (Generally Accepted Accounting Principles) or IFRS (International Reporting Financial Standards).
What’s usually included in a financial report?
Cash flow statement
This statement tracks the inflow and outflow of cash, showing where your money comes from and how it’s being spent. It highlights your cash management and tells you how much cash is available to fund your operating expenses and any debts. From this, you can see if the institution is in a solid position.
Balance sheet
The balance sheet tracks your assets and liabilities. Assets include things like available cash, the value of inventory and equipment, and any money owed to you, such as school fees. Liabilities include accounts payable (the money you owe, such as salaries and benefits) and debts such as loans.
When you subtract the liabilities from the assets, the resulting amount is referred to as shareholders’ equity—which is your institution’s net worth.
Income statement
Whereas the balance sheet is a snapshot of your finances on a specific date, the income statement tracks them over a longer period. It’s a record of your expenses, revenue, and net loss/income. Because it includes profits and losses, it’s often called a P&L statement.
The importance of simplified financial reporting
Educational institutions have a lot of data to work with, especially when multiple revenue streams are involved. By keeping financial reports simple, neither the people who produce the report nor those who read it will be overwhelmed by information.
Clarity
When you’re sharing financial reports with everyone from faculty members to potential investors—not all of whom will have a financial background—it’s important to present the data in a way that’s easy to interpret and provides a clear picture of your financial situation. Clear reports provide valuable insights into the performance and health of the institution.
Accuracy
The simpler the reports, the less likely they are to contain errors—and you won’t run the risk of basing important financial decisions on inaccurate information. By making it easier to analyze the data, you’ll also be better equipped to forecast future trends and decide where best to spend money, whether it’s expanding educational programs or construction projects.
Control
Clear reporting also makes it easier to keep a firm grasp on your finances. You can spot any problems, such as financial discrepancies and operational inefficiencies. And if there are any areas where you’re spending excessively or unnecessarily, the report will draw them to your attention. Then you can work on ways to reduce costs.
Compliance
With simplified financial reporting, you will have a clearer view of whether or not your institution is compliant with the relevant regulatory standards. That way, you’ll avoid potential penalties or reputational damage. There are also standardized guidelines you can follow when compiling your reports, to ensure that nothing crucial gets missed out.
10 ways to simplify financial reporting in educational settings
Here are our top tips to simplify both the reporting process and the reports themselves.
1. Use a consistent reporting format
One of the keys to simplified financial reporting is consistency. If you come up with a set of standard procedures for generating reports, they will all be completed in the same way—no matter which team member puts them together.
It’s important to use consistent formats for income statements, balance sheets and any other records involved. This way, it’s easier to compare and check reports against each other, because you’ll be comparing apples with apples.
2. Standardize data collection
Before you even think about simplifying the contents of your reports, start by focusing on how you collect the information that goes into them. Standardizing data formats, storage, and access across the institution will help you to simplify the reporting process.
For example, make sure you house all your financial information in a central database, so that it’s readily accessible. When all datasets follow the same structure and have clearly-defined fields, it’s easier to classify them and find what you’re looking for.
Accuracy and consistency are built on strong internal communication, so consider something like Vonage VoIP phone services to keep different teams or hubs in the loop.
3. Check for accuracy
It’s essential that all your financial data is reliable and up-to-date, otherwise you’ll be making decisions based on the wrong figures. You’ll need a robust checking system to ensure no errors creep in. Cross-check the data against its source, such as verified financial statements.
Make sure your data storage system can handle information in various formats, and run consistency checks—for instance, you don’t want some figures displayed as fractions while others are displayed as percentages. Internal controls like review processes and fraud prevention are also important.
It’s good practice to provide your team with training on accurate and simple financial reporting, as well as implementing automated tools to reduce human errors.
4. Work to a schedule
Another way to simplify the reporting process—and to boost consistency and accuracy—is to get into the habit of gathering and checking data regularly. By setting up a formal schedule for these activities, you’ll make it easier for people to access the data when it’s time for a report, as well as improving accountability.
This also ensures that the data used in each report is as current as possible. You might decide to track and record operational transactions on a daily basis, or reconcile transactions on a schedule throughout the month. You’ll also need a schedule for checking on revenues, expenses, cash flow, and adherence to budgets.
5. Be tax aware
A major advantage of regular data collection and verification is that it gets your institution into a state of readiness for tax time. Although non-profit and private education institutions may have tax-exempt status, they must still file an annual tax return with the IRS.
Public schools are not tax-exempt (although they do receive some tax benefits). So what we’re saying is: your institution could be audited by the IRS—so it’s important to keep thorough financial records. You can reduce stress by setting protocols for retaining reports and statements and documenting procedures and controls for financial workflows.
6. Assign clear tasks and roles
Whether or not your institution has its own finance department, it’s good practice to ensure that everyone involved in financial reporting has a clear idea of their role and the duties they need to perform. Without this structure, you may get duplication of tasks.
It’s best to segregate responsibility for tasks like issuing purchase orders, collecting payments, and reconciling accounts. That way, you enhance accountability but also make it easier to detect any errors (and prevent them from happening in the first place).
You should also document your financial reporting workflows, so that there’s a clear process in place—meaning that current and new staff alike can execute them in the same way.
7. Integrate your systems
Integrating your core business systems is a great way to simplify financial reporting, as you’ll be able to access all the relevant data from a single source of truth. With accurate data flows between your accounting software and other tools such as a student information system, you can generate reports faster.
If your software doesn’t come with native integrations, you can set up your own using an API (Application Programming Interface), an intermediary protocol that allows apps and web services to exchange information easily. An API example would be open banking, which facilitates secure bank transaction approvals.
8. Comply with accounting standards
You can also make financial reporting simpler by sticking to recognized accounting standards such as GAAP (Generally Accepted Accounting Principles). These are issued by the Financial Accounting Standards Board (FASB) and the Governmental Accounting Standards Board (GASB).
Unless you’re a publicly-traded organization, you’re not required to follow GAAP. But it’s still worth doing so for educational institutions, since it’s a commonly-accepted way of reporting financial information. Look for accounting software that supports GAAP, like OneStream does.
9. Take advantage of technology
Financial reporting can be a time-consuming process. It’s tedious to enter data manually, and it’s also prone to typos and numerical errors. Technology, specifically automation, helps you to reduce human errors and speed up the whole reporting process.
Some useful examples include digitizing paperwork with optical character recognition (OCR), which automatically extracts data from scanned documents. You might not have considered corporate finance analytics or sales engagement software, but both have applications in educational settings.
Software also makes data reconciliation more reliable, automatically grouping and organizing the information and storing it in one place (accessible from anywhere via the cloud). This increases productivity and gives staff more time to spend on high-value tasks.
10. Pay attention to presentation
Finally, you can simplify the way you present your financial reports. Using plain, jargon-free language will help readers to interpret the information, and a legible typeface is a must. It’s useful to include a table of contents, plus headers, sub-headers, and bullet points to break up walls of text.
Format the report in a logical manner by grouping related information together or sequencing it in order of importance. Tables and charts are ideal for visualizing the data, and cross-references will also help people to understand and analyze the report.
TOP TIP: Don’t be tempted to cram everything into one report—only include what you actually need. Simplified reports contain no unnecessary information that could overwhelm the reader. Don’t forget, you can add footnotes that contribute to the whole picture.
Wrapping up
Simplifying your financial reporting is crucial in an education setting, for tracking your financial health, managing the institution effectively, and making informed decisions. By standardizing report formats and the data collection process, you can make your reports clearer.
You’ll need to gather information on a regular basis and check it for accuracy, as well as adhering to accounting standards. Automated accounting software helps you to reduce human errors and improve data reliability, especially when you integrate systems to centralize the data.
By following the tips in this post, you can gain full control over your institution’s finances and readily share the information with anyone who needs to see it.
