Even if the thought of talking finances makes you break out into a cold sweat, if you’re the owner of any type of business, it really is important that you understand how your company is performing financially so that you can make better informed decisions to support long-term growth and success.
If you love your business, but don’t love thinking or talking about its finances, it might be best to work with a corporate tax accountant, who can talk you through what you need to know, without the use of complicated terms and jargon, and in simple form. This will help you learn not to fear the financials, and teach you how to use them to your advantage.
Providing invaluable insights into the overall health of a business, financial reports can be instrumental in helping you to identify any areas that could be improved upon. Here are 5 vital financial reports that business owners should be aware of, understand, and regularly review:
- Income statement, or profit and loss statement
Two names for the same thing, this statement gives you an overview of how profitable your business has been over a certain period, and outlines revenue and expenses, along with net income or loss.
When this statement is analyzed, you can gain a better understanding of whether your business is profitable, and identify areas in which you may be able to reduce costs or increase revenue.
2. Balance sheet
Whether at the end of the month, end of the quarter, or end of the year, the balance sheet gives you a glimpse of how your business is performing financially, at certain times of the year, and is made up of the following sections:
- Assets – which is everything owned by your business, including inventory, cash, accounts receivable and equipment.
- Liabilities – includesfinancialobligations like loans, accrued expenses and accounts payable.
- Equity – this represents the owner or shareholders equity in the business, and is the difference between assets and liabilities.
3. Cash flow statement
Consisting of three sections: operating activities, investing activities, and financing activities, the cash flow statement helps track cash movement in and out of your company during a certain period.
When the cash flow statement is properly monitored, it can help you make sure there’s cash available for operational expenses, and for investing in opportunities for growth. Additionally, it helps to highlight any potential issues with cash flow and the management of cash.
4. Accounts receivable aging report
Tracking any customer invoices that are outstanding, and how long they haven’t been paid for, this report is important if your company offers its customers credit terms.
Divided into categories according to how many days overdue the payments are, analyzing this report highlights customers who are late with payments, and helps you identify any areas in which you might be able to improve upon your policies for credit, and your efforts for collecting debts.
5. Accounts payable aging report
Much the same as the accounts receivable aging report, this report tracks bills that haven’t been paid to suppliers.
Helping you better manage the short-term liabilities of your company, and stop you from missing payment deadlines, regular reviewing of this report enables you to improve your payment schedule, stay in your suppliers good books, and not be forced to pay fees for late payments or damage your credit score.
Although you might not want to, and bookkeeping in Surrey can certainly handle most of these reports for you, it does pay to try and understand these 5 important financial reports for the overall health of your business. More than just numbers on paper, they should be seen as tools to help you achieve your company goals.