Playing a vital role in the life of all businesses, financial statements help business owners and leaders make more informed decisions, and provides them with valuable insights into the overall health of a company’s finances.
When it comes to smaller businesses, nothing could be more important than managing its financial statements; getting it wrong, could spell disaster.
In this short guide to financial statement compilation (which can include income statements, balance sheets, and statements of changes in equity), there are some best practices and tips that could help ensure your financial reports are both accurate, and capable of setting your business on the road to success:
Always maintain accurate records
Creating a financial statement that’s accurate, begins with having access to meticulously kept records of all business transactions. You can invest in the latest accounting software to help you achieve this, or hire a professional bookkeeper.
Be consistent
It’s essential that you use the same methods of accounting and the same principles, across all of your financial statements. Doing so will help make sure that over time, your data is comparable.
Reconcile regularly
Ensure that all of your financial statements are accurately aligned by cross-checking your balance sheet, income statement, and cashflow statement. Should you find any irregularities, these should be properly looked into and resolved as quickly as possible.
Get help from a professional
Having guidance from a CPA or Financial Advisor can be crucial in successfully navigating financial transactions that may be more complex in nature, and in staying compliant with all relevant tax regulations.
Plan for growth
As a strategic tool, nothing beats financial statements, and you can use yours to give you a detailed analysis of the financial health of your business, along with helping you identify any areas in which improvements could be made, or opportunities for growth can be seized upon.
How important are financial statements for decision making?
Although they are a legal requirement, financial statements can also be powerful tools in their own right; helping business owners make more informed decisions.
Below are just some of the aspects of a small business that financial statements can offer insights in:
- Budgeting and forecasting
The historical data presented by your balance sheet, income and cashflow statements, can help you create budgets and financial forecasts.
- Identifying trends in cashflow
Anticipating periods of shortfall or surplus in cashflow is made easy with cashflow statements, allowing you to better plan for unexpected expenses or seasonal fluctuations.
- Attracting lenders and investors
Your business’s financial statements will be scrutinized by potential lenders and investors, and preparing them properly and in advance, can help them have more confidence in your business as a whole.
- Tax planning
Having financial statements that are well-maintained can streamline tax season, giving you a much clearer picture of your expenses, income, and deductions.
- Relationships with vendors and suppliers
Having a well-rounded understanding of your business’s financial health, can put you in a much better position for negotiating terms with suppliers and vendors.
- Employee management
Once you have financial reports that are accurate and clear, you might be able to justify increasing your employees’ salaries, or giving them bonuses, for example.
Hiring a company tax accountant can simplify the preparation of financial statements, and alleviate much of the burden from your shoulders.
As the owner of a small business, you likely need all the help you can get, and finances and taxes is one area you absolutely shouldn’t try to cut costs on. So, hire a tax professional today, and you could find yourself reaping the rewards for many years to come.
