Running a small business often comes with a lot of paperwork, and a lot of times, it can be quite confusing for a newbie entrepreneur to figure out which of these documents are the most important for their business. And since most small businesses are not financially stable yet, owners have to keep track of their company’s financial report.
According to a Wikipedia article, “A financial report, also known as a financial statement, is a formal record of the financial activities and position of a business, person, or other entity”. The information found in the financial report is organized in a way that will allow the reader to easily monitor financial activities. While a lot of entrepreneurs often find themselves intimidated by their financial statement, evaluation and analysis are crucial in keeping track of the company’s financial health and stability.
A business financial report is a significant asset for the following reasons:
It does not matter whether you are a rookie or a seasoned entrepreneur running a startup business, or whether you do your own bookkeeping or have an expert accounting team to do it for you. Whichever end of the spectrum you are on, what matters most is that you have to familiarize yourself with the three financial reports that are essential for your business.
A balance sheet provides a clear picture of the overall financial health of a business. It has two sections with three components: asset, liabilities, and equity.
Assets include the money in your bank, cash on hand, and the amount of money owed to the company.
Liabilities include the money owed by the company (unpaid payroll and bills as well as outstanding loan principles).
What the balance sheet does is balance the two sections. Adding the total amount of liabilities to the equity is equal the total amount of assets (assets = liability + equity). If you want to check the net worth of your company, simply subtract the liabilities from the assets.
Check out the following sample balance sheet templates that are provided below:
This type of financial report provides comprehensive details on revenue earned and money lost. The income statement is usually requested by the investors in order for them to examine how much your company has made or lost at a given period. Your company’s net worth is usually determined by subtracting the expenses from the total gross revenue of the company.
This type of report provides an overview of the amount of money that is coming in and out of the business. Evaluating the cash flow of your company allows you to determine the operations how the company is generating income and how that income is being spent. If you want to determine the amount of the ending cash balance, simply add the starting cash balance to the cash flow and then subtract the result from the cash outflow.
Getting yourself acquainted with your business accounting can be extremely advantageous on your part because you will be able to see the actual amount of the cash flowing in and out of your business. Thus, understanding the three key financial records is essential for the financial health and success of your business.
As an entrepreneur you have to make sure that the financial statements or reports submitted by your accounting team are accurate and timely so that it will be easier for you to understand the current financial status of your company and run the business as efficiently and smoothly as possible. This is extremely helpful and necessary, especially if you are looking forward to get a funding from a prospective investor, loan from a bank or sell your business.
Do not forget to check out and download our company and financial report templates and use them as you reference guide in drafting your own financial reports.