We get it: as a business owner, you have a lot on your plate. From managing the day-to-day operations, to marketing, to tax planning, to a litany of other tasks—business owners are often stretched paper-thin. One way savvy business owners save time while gaining insight into the operation of the business is through financial reports. Let's take a closer look at our top financial reports every small business should have and understand.
The Balance Sheet Financial Report
No matter the size of your business, it's of the utmost importance you have a balance sheet. This quintessential financial report can be a true indicator or snapshot of the financial health of your business. It lists your company's short-term and long-term assets as well as liabilities. By completing a balance sheet annually, you will be able to quickly determine whether your company's net worth is increasing or decreasing. In addition to the financial health of your business, the balance sheet offers insight into your owner's equity percentage.
The Income Statement Financial Report
Also known as the Profit and Loss (P&L) statement, the income statement is just as vital as your balance sheet. While there are more in-depth explanations of the income statement, it's essentially a financial report that shows whether your company has lost or made money. The income statement can be created on a monthly, quarterly, or yearly basis. But when you run and examine the income statement on an annual basis, you can easily spot and track expense and revenue trends.
The Cash Flow Financial Report
The cash flow financial report or statement of cash flows demonstrates the movement of cash in as well as out of your business for a specific time period. This financial report is arguably one of the most important documents for startups and small businesses because it empowers you to quickly see how capable the company can meet interest payments and debt. Like the income statement, the primary concern of the cash flow report is profitability.
While most business owners fail to consider tax returns as a financial report, they are! The actual tax form your business files will be based on the business entity type. And for each type of business entity, there are different tax consequences and tax rates. Because of this, it's important to work with an experienced CPA when it comes to selecting a business entity type as well as filing taxes. Your business tax returns can be used to help inform growth strategies that can be beneficial to the business, such as:
- Should the business purchase new equipment now or later?
- Would there be benefits to expanding to a new location?
- When should the business hire new staff?
Accounts Receivable/ Accounts Payable Financial Report
Also referred to as the Accounts Receivable Aging Report, the Accounts Receivable Report demonstrates money that may be invoiced but not received. For clarity:
- Accounts receivable is an accounting term used to explain funds that are owed to your business.
- Accounts payable are funds that your business owes to others and must payout at some point in time.
This report categorizes debts owed to the business, including the length of time the debt is owed. In most instances, the time periods can be broken down into four categories:
- 0-30 days, or current bills due
- 31-60 days, or bills over 30 days late
- 61-90 days, or bills over 60 days late
- Bills over 90 days late
As a business owner, it can be especially insightful to see the amount of money owed in each of these categories. In general, it's believed that the older a debt is, the less likely it will be paid. And if you see a lot of money hanging out in the over 90 days late category, you may want to have a discussion with your accounts receivable team.
Budget vs Actual Financial Report
If you create a budget, it can be helpful to review how well you performed based on these projections. This statement compares where your expenses and income are relative to where you thought they would be. And this report can be very impactful and insightful when it comes to reviewing budget vs actual performance in terms of periods of time, such as pre-COVID business performance. In the simplest sense, this financial report can help you spot under-spending as well as overspending while helping you monitor your revenue.
Contact MB Group For Assistance with Financial Report
At the MB Group, we are a team of small business CPAs and accountants who offer exclusive services to help you save time, save money, and grow through it all. In addition to the preparation of different financial reports, our business analysts and financial planning experts can help you understand and evolve each financial report into actionable insights.
Contact the MB Group today to learn more about how we can assist with financial reports for your business.