Talking Cents

A Guide to Financial Reporting for Small Businesses

Financial reporting for small businesses is a way to keep track of all monetary aspects of the firm. This is an essential tool that dictates how successful your company has been and what steps need to be taken to further grow the revenue. There are many facets to financial reporting. All these processes bring forth different information about the business.

For example, a profit and loss statement shows the net profit gained by the company. The cash flow statement provides insight into the cash availability for different months. The equity statement offers the value of the assets built by the company.

Here is a list to help you understand the different aspects of financial reporting.

Profit And Loss Statement

A profit and loss statement, also known as an income statement, is the net profit or loss after deducting payroll expenses, tax deductions, and all other business expenses required to run the company. This is the most crucial part of financial reporting as you understand the profitability of your endeavours. If you are going through temporary loss, an accountant can help you figure out ways to improve your business performance.

If you are in net profit, you can discuss what the growth prospects are, which months are more susceptible to a cash crunch, and how you can ensure the smooth sustenance of your company.

Cash Flow Analysis and Forecast

Cash flow is very different from a profit and loss statement. You can have a low cash flow despite earning high revenues in profits. A cash flow analysis is a view of the income and outflow of cash in a particular time frame to map out the available money for that duration. This means one must be aware of the impending expenses and the outstanding amount from receivables to avoid a cash crunch.

Balance Sheet

A balance sheet is a statement of different liabilities and assets and the evaluation of the business capital to gauge the balance of income at a particular point in time. As you already know, liabilities are entities such as debt, interest, etc., and assets are company equipment, owned property, etc.

Statement of Changes in Equity

Equity is the assessment of the company through its real-time evaluation. A statement of changes in equity signifies any signs of growth in attaining new assets or growing profitability.

Financial reporting is a very expansive process. Your accountant must have a specialisation or ample experience in the subject to be helpful in the growth prospects of your small business.

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