The struggles of 2020 are no secret. Layoffs, restructuring, and shutdowns have businesses reeling six months after the pandemic began in the United States. Adding to the complication are the natural disasters and civil unrest that have taken place this year.  

Keeping your lenders and investors informed through financial reporting is more important than ever. Like everyone, they are concerned about stability and the future. While stakeholders may be understanding when reports are delayed, they also may jump to conclusions. Here are some common assumptions they may make. 

Your business is in trouble

It’s human nature to put off delivering bad news. If you delay issuing financial reports, though, your stakeholders may assume that you’ve got something you don’t want to tell them - especially in a time where it seems like nothing but bad news. 

They may even decide, based on the delay, that your company is in a precarious position or even that you’re heading towards bankruptcy.   

Now more than ever, transparency is important. Even if your 2020 results are below what was forecasted, put your statements out on time to assure stakeholders. Transparency and timeliness show them that you’re proactive in tracking problems and finding solutions. 

Management isn’t effective

Let’s be honest - timeliness does more than show your stakeholders that you’re following developments. It demonstrates a commitment to staying organized and structured. These are two qualities you want to associate with your management team. If you’re handing over late financials, though, that’s not the impression you’ll deliver. 

Delayed financials can also indicate that managers don’t prioritize reporting. Even worse, it could suggest that people in charge aren’t watching how your business is performing on an ongoing basis. 

Yes, there may be logical explanations for delays. Accounting departments may be understaffed. Major rule changes could create confusion. These are definitely possibilities. But in today’s climate, it’s important to always put your best foot forward and you can do that by delivering products on time.

Internal controls are weak

Fraud. It’s on the rise right now because of the pandemic. But with well-constructed and well-implemented internal controls, you can help your business protect its interests against fraud. 

Part of these controls is consistent processes for reviews and audits, both by internal and external parties. If management isn’t prioritizing financial reports, dishonest employees may take this opportunity to try and defraud your business.  However, fraud is generally harder to perpetrate if you make putting together and reviewing timely financial statements a goal.

Violation of loan covenants

Violating loan covenants does happen, even when businesses are well-intentioned. However, sometimes management will delay issuing financial reports to put off dealing with the problem or because they’re concerned about how their bank will respond. 

Given today’s challenging economic environment, though, some lenders may waive violations or restructure debt if a business demonstrates a good faith effort to protect cash flow, pay their loan on time, and update its business model, if possible.

Do you need help preparing timely financials? Looking to develop a better forecast for the upcoming months? Staying ahead of the game can keep you on the good side of your lenders and investors. Contact Smolin Lupin today to learn more about how we can help you meet these goals.