Important financial reports for your business

When starting out a small business, Owners may find it confusing to determine which reports are important and how to read these financial reports. There are important reports which are essential to grow and maintain the business.

Top 6 financial reports for running your business:

1. Balance Sheet

A balance sheet is the single most important financial report for a small business because it provides a snapshot of a company’s overall finances. On a balance sheet, liabilities and owner equity are combined to equal all assets.

Liabilities + Owner’s Equity = Assets

2. Income Statement / P&L Statement

P&L indicates a company’s profitability over a set period (usually the quarter or year) to assess whether it made or lost money. The objective for the P&L is to project upcoming sales and expenses to arrive at a net profit figure.

Gross Profit – Total Operating Expenses = Net Profit

3. Cash Flow Statement

A cash flow statement is concerned with a company’s profitability. However, the cash flow statement specifically looks at how much money is coming into and going out of the business at any given time to understand the effect daily operations have on the business’s overall financial position.

Beginning Cash Balance + Cash Inflows – Cash Outflows = Ending Cash Balance

4. Accounts Receivable Aging Report (AR)

Badly managed accounts receivable (AR) is the leading cause of cash flow issues for small businesses, which is why it is important to immediately identify unpaying accounts and slow-paying customers.

5. AR (Account receivable) Days vs. AP (Account payable) Days Report

Accounts Receivable Days is the average number of days it takes a business to get paid for products/services, while Accounts Payable Days is the average number of days it takes a company to pay vendors or suppliers. The ratio between these two figures indicates cash availability for business and operations.

6. Budget vs. Actual Report

Comparing actual spending to the budget and actual revenue versus sales forecast allows small businesses to determine where budgeting can be improved in the future for optimisation.

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