3 Financial Reports Every Business Owner Should Be Looking At
No Business owner can make informed decisions without knowing the truth about their business.
When starting a new small business, many entrepreneurs find it difficult to determine which financial reports are important to have. I’ve been asked the question by small business owners at different stages of their business. Startups need to make sure their business has a good foundation. Businesses in their second or third year need to evaluate how they’re doing and what needs to be changed. Financial reports play a huge part in a business running with accuracy, efficiency and effectiveness. There are many different reports that tell a business owner what the “financial” health of their company is.
Why Is Accounting So Important?
The primary function of accounting is to record a company’s incoming and outgoing cash transactions. Record keeping helps a business run efficiently and stay on top of where it stands financially. The three main benefits of good record keeping for businesses is; taxes, expense tracking and document organization.
Taxes: Accurate accounting records makes preparing the company’s yearly tax returns go smooth and efficiently. Paying the proper taxes for your business is important. Hefty penalties can apply if your company’s taxes are not calculated properly.
Expense Tracking: Good accounting tracks the monthly expenses for a company. Business owners can see where they are spending too much money and where not enough is being spent in particular areas of their business.
Document Organization: Having a good audit trail and documentation is vital to every business. Good accounting keeps your financial records organized in date order and separated by function. It’s important that information is able to be retrieved quickly when needed.
Accounting is the hidden secret behind every successful business. A good marketing plan brings you customers. A great work ethic keeps your customers. Good accounting sustains your business, and tells you where to go next.
Reports tell the brand’s story. Understand their language, understand your story and understand the story of everyone in your company. Understand your reports; understand the doors that are open and closed to you.
Here are three most important financial reports
1. Balance Sheet – Shows the financial position of your company. This includes assets, liabilities, and owner’s equity. Included in this report is your cash balance and your liabilities.
2. Income Statement – Shows the revenue, expenses, and the profit/loss of your company for a specific period of time. P&L is important because it gives you an idea how profitable the company is overall.
3. Cash-Flow Statement – This report is the most important report for small businesses and startups. The cash flow report allows you to see how readily a company can meet its debt and interest payments.
Financial reports tell the past, present and future of your business. The past is the decisions you made in the beginning and how they affected your financial gain or loss. The present is the quick snapshot of what decisions you are making right now. The future is what you decide to do with the information these reports has given you. How you use this information is the defining factor of your business growth or its demise.