If you are starting out in business you are probably wondering what financial reporting entails and how you go about it. Financial reporting/statements allow you to provide an overview of your financial condition in the short and long term.
Let's refer to 4 common questions :
Why Should I Prepare Financial Reports?
Not only are these important for you and your business forecasting purposes, they are also important to those people who support your business i.e. banks, investors, creditors and suppliers. Why? Banks are interested in your company's ability to make payments back to them for any loaned funds. Investors want to know what your company's profit margin is and creditors and suppliers need to know what your credit history is in order to make the decision on whether to allow you to have an account with them for goods, or not.
I've Only Got a Small Business - Do I Still Need Financial Reporting?
Yes, whatever the size of your business now, you will have financial goals for the future and financial reporting can assist you with this by showing you your business cash flow. Knowing how your business is spending it's money and where, can assist you with making better decisions for the future in order to make more profit.
What Are the Most Common Forms of Reporting?
Balance Sheets - a.k.a Statement of Financial Position shows your company's assets, liabilities and net equity
Income Statement - a.k.a Profit & Loss Statement this is used to show your company's income, expenses and profits.
Statement of Retained Earnings - used for showing the changes in your company's retained earnings (the portion of net income which your company keeps or 'retains')
Statement of Cashflows - used for cash flow activities, particularly its operating, investing and financing activities
The results of each of these reports are always for a specific period, for instance annually, monthly etc.
Shouldn't My Accountant Do All of This For Me?
Whilst you can employ the services of an accountant to complete your financial reports, there are many software applications which can take a lot of the stress out of it not to mention a lot of the cost. This will enable you to complete all the day to day invoicing, wage paying etc too, which means that you have all of your financial information in one place. With most applications you can save your information onto a CD or by other means to pass on to your accountant at the end of each financial year, for auditing purposes.
If you have further questions about your business financial reporting, why not take a look online at some of the products and services available to you. The websites you come across may well answer your questions and provide the product / service you require.