The preparation of financial statements is a non-negotiable for any business owner.
Financial statements — including your balance sheet, profit & loss report, cash flow statement — are how you monitor and analyze the financial position of your company.
These completed documents can be used internally to help you make decisions for the future, but they can also be distributed externally to lenders, creditors, or investors who will use them to evaluate the performance and health of your business.
Let’s take a closer look at what each of these financial statements are and what they tell you about your business:
Balance Sheet
This report will show you everything that is owned (assets) and owed (liabilities) by a company, plus the owners’ equity. It also illustrates how a company is utilizing its assets and shows the overall health of your business at a certain point in time.
Profit & Loss Report
The profit & loss report focuses primarily on the revenues earned and expenses incurred during a set period of time. It’s also known as a income statement and demonstrates a company’s ability to generate sales and manage expenses over that set period of time.
Cash Flow Statement
This report shows the increases and decreases in cash during a given timeframe. It is used to distinguish between changes in cash due to operating, financing or investing activities.
Credit Decisions
Lenders will use your financial statements to determine whether or not they will offer you a line of credit.
Investment Decisions
Investors will use your financial statements to determine whether or not your business will make a profitable investment for them.
Taxation Decisions
The amount you pay in taxes is determined based on the assets and income that your company has which is illustrated by these documents. Monitoring these statements throughout the year as a part of your regular tax planning activities can also improve your positioning at tax time.
We’ve worked with many small businesses to remove the stress of preparing their financial statements so they’re able to keep their focus on running their business.