Financial reports are important for any organisation but are critical to the success of small and medium-sized enterprises. When you're starting your own business you want to have every cent paid and received accounted for, and a projection for what the financial state is going to be like. To be able to grow your company and have an overview of its finances, there are 4 key financial reports your business should be running.
1. Balance Sheet
Probably the most important financial report for small businesses, a balance sheet provides you with an overview of the company's finances at a certain point in time, usually done at the end of the month. This report is done by showing the company's assets, liabilities and equity or in simple terms what your company owns, owes, and how you're financing those resources.
By doing a monthly comparison of your balance sheets you can make better and more informed financial decisions. It is also a crucial metric that lenders see before determining a company's creditworthiness.
2. Income Statement
The income statement (also known as profit and loss statement) is a report that shows whether a company made a profit or a loss in a certain period, by showing the revenue gained and the expenses that occurred to generate that revenue. Ideally, you'd like to have your revenue to be higher than your expenses - also known as making a profit. But, you won't have a clear-cut picture of your income unless you run these reports on a monthly level. By doing this every month you can see where you made (and lost) the most money and can help you organise your finances for the coming months.
3. Cash Flow Statement
Speaking of organising your finances, there is no better way to do this than by running a cash flow statement. Much like the balance sheet, the cash flow statement takes into account the profitability or the loss that your company made at a certain time. The key difference between the two is that the cash flow statement takes into account only the cash that came in and out of the business, it does not take any non-cash activities into account.
4. AR Days vs AP Days
Much like the other three reports we've mentioned, Accounts Receivable Days vs Accounts Payable Days reports are very simple to understand if you just look at the name. AR Days is the average amount of days it takes for your business to get paid, while AP Days is the average amount it takes for your company to pay your invoices.
For any successful business, this report should be standard practice to ensure that everything is running smoothly when it comes to payments. However, if you're paying money faster than you're receiving it there are several things that you should note. First and foremost, check your competitors and the industry standard as to how they're dealing with the same issue. In a nutshell, if it's normal practice within your industry for this to happen then there's no reason to worry. However, if this isn't the case, you should look into why you have a problem with getting your clients to pay you and fix this issue ASAP. A short-term solution you can look at it is asking your clients/suppliers for a flexible payment schedule.
We Can Help You
If you're having issues with any of your key financial reports, or just need assistance with your overall accounting/finances we can help you out. Whether you need us on a monthly or project basis, we can act as an extension of your in-house team or as your independent accounting team. Check out our F&A subservices and give us a call for a free consultation.