Studies: Financial Communication
Recipes for Success in Financial Communication
One finding of the studies is that companies fall quite clearly into two groups in their attitude to communicating their financial data: those who advocate it/view it positively are open and proactive, while the sceptics prefer to keep their cards close to their chests – with the consequences that might be expected.
How the proponents and the sceptics differ:
The proponents stand out clearly from the average company in their generally positive appreciation of the value of communicating their financial data openly. They believe that a good performance in this area is useful to them and helps them to plot a course for their company. This positive approach can be clearly seen in five core criteria.
In contrast, the sceptics show a negative variance from the average in all of these criteria; they have, on the contrary, major reservations about communicating their financial data and have more often the feeling that they are going cap in hand to their capital providers.
How the proponents benefit:
But the burning issue is first and foremost this: is the extra effort involved for the proponents worth it in the end? Does it bring them any measurable advantage in their financing? And might they even be the more successful entrepreneurs?
The studies are able to provide evidence that the different types with regard to the communication of financial data also diverge clearly in their economic performance. The proponents are better able to assess their business situation than the sceptics. The proponents also report a positive trend in turnover and profits much more often. There are almost three times as many companies in some sort of crisis among the sceptics.
But what concrete benefits do the proponents derive from their efforts in their financing? First of all this can be said: the frequency of cheaper credit lines is no greater than for the sceptics. 40% of the sceptics subscribed to the proposition “Our financing costs us less“, but so do only 42% of the proponents.
Nevertheless, major differences are apparent in some other conditions of credit: good communication of financial data improves the quality of the relationship with capital providers and provides greater choice in sources of finance. Proponents get positive answers from their sources of finance far more often than sceptics (+34 percentage points), they can improve the relationship of trust with their financiers considerably (+ 30 percentage points), and report much more often: “our capital provider understands us better“(+ 30 percentage points). 67% of the proponents answer the question whether they can access more funds in the affirmative, while only 41% of the sceptics make this assertion.
On top of these direct results, companies which pay close attention to the communication of their financial data gain further advantages: it is easier for them to finance their activities out of their own revenues, to source risk capital and, as a consequence, also bank credit. This is particularly striking when we look at the equity ratio/gearing: a much greater number of the proponents has low gearing/ a high equity ratio than among the sceptics. 39% of the proponents have equity ratios of 30% and more, while this is only the case in 27% of the sceptics.
Thus one interim result is already clear from the study: companies which pay closer attention to the communication of their financial data have decisive advantages:
- they can expect greater understanding from their capital providers, especially when times are hard.
- they have more funds available.
- they do not need to put up so much collateral.
- they can largely avoid complications in accessing finance, they save time which they can put to more productive use for other company activities.
You can read more about the studies „Finanzkommunikation“ in the Wirtschaft Konkret issues:
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