Best Financial Reports for Small Businesses
For a business to succeed and be sustainable in the long-term it is highly important for it’s owner to have access to the appropriate financial documents and financial reports which will ultimately help the owner in assessing the business’s financial position and performance.
Today, we’ll be discussing some documents that are highly important for you to have access to if you want your business to be successful over a long period of time. The six most useful financial reports and documents for small size businesses are listed as follows:
- Balance sheet
- Income statement
- Cash flow statement
- Business plan
- Budget report
- Accounts receivable aging report
1. Balance Sheet
A balance sheet provides you information about your assets, liabilities and equity. In other words, this document is prepared on the basis of the accounting equation which is as follows:
Assets = Liabilities + Equity
A balance sheet can be best described as a snapshot of an entity’s financial position at a given date. On one halve of the balance sheet lies an entity’s non-current assets (both intangible and tangible) and current assets while on the other halve lies its equity (amount that have been injected into the business by the entity’s shareholders) and liabilities (obligations whose settlement is pending on the entity’s part). The figures on both the sides of the balance sheet should be exactly the same. An entity must have more assets than it has liabilities if it wants to sustain itself over a long period of time.
2. Income Statement
An income statement (also known as statement of profit or loss) provides information about an entity’s financial performance over a specific time period. In simple words, this financial report provides information about an entity’s income and expenses over the course of a specific time period and indicates whether the business has been profitable during that time period or not.
In order to prepare an income statement, an entity must list all its revenue including the sources from which the revenue has been earned (e.g., income from rendering services) as well as all its expenses whether direct or indirect.
3. Cash flow Statement
Cash flow statement is one of the most important report that every stakeholder of a company should analyze in order to identify and control cash flow problems. This statement showcases how much cash is flowing in and out of the business entity. The statement has three main sections which are mentioned as follows:
- Cash flow from operating activities;
- Cash flow from investing activities; and
- Cash flow from financing activities.
The statement with the help of the aforementioned section shows you which part of your entity is generating the most cash and which is spending the most.
Cash flow statements can be very useful when preparing budgets for future financial periods. For example, if you’re cash flow is negative for a given period then it actually means that you’re spending more than you’re earning, the statement helps you in identifying areas where you need to cut back in next month’s budget. Further, many investors focus more on an entity’s cash flow statement rather than it’s balance sheet and income statement when making decision of investing in an entity.
4. Business Plan
A business plan helps in mapping out where your company stands and where you intend to take it and how you plan on achieving that. This document can be very informal, especially if you plan on using it internally as a strategic guide. But if you intend to share your plan with potential lenders or investors then you’ll want the plan to be a little bit more formal. In order to give your plan a more formal touch you can add details of your financial goals and targets in it.
5. Budget Report
While other documents that we have discussed today provide information about where an entity stands, a budget report provides information about where an entity wants to see itself in the future. A budget report is a future projection and is usually prepared using the past results and the current market trends. A budget report contains an entity’s projected income and expenses for a specific time period, it can vary from a month to several months and in some cases several years.
6. Accounts Receivable Aging Report
The accounts receivable aging report contains a list of customers with overdue invoices. The receivable aging report provides its users with the information regarding when a sales invoice was generated, when payment against a sales invoice became due, how late the payment is, and how the entity can contact the customer for collection purposes.
When you put your time and effort in assembling and analyzing the above-mentioned financial reports and documents, you’re basically giving yourself the tools that will help you in keeping your small business on the path of success and sustainability.