Financial statements have long been an important part of business management. Businesses like maintaining financial statements because they do not only sum up the hard work that is put into the business but also help the organization grow into success. If you want to maintain your financial statements you ought to learn from the lessons that we mention as part of this article.
Keeping tabs on your financial statements can be quite beneficial for your business. Not only do these financial statements help your business to reach the heights that you expect from your business, but they also allow you to become successful. You cannot be successful as a brand without realizing the importance of financial statements.
We talk about the importance of these financial statements in detail, because they are really important to you for experiencing growth. If you want to witness growth as a small business, you should go one step at one time. All businesses that take all their financial statements into perspective are able to take small but important steps towards the end goal that they have in their mind.
The financial statements you have are also the end product of actively maintaining your books during an accounting period. Your books would only match and show the results you want when you have actually been maintaining them for a lengthy period of time. You cannot expect the best results without having a keen eye on these books.
Here we take a look at all the financial statements you have within your business and all the information that you should have pertaining to them.
The balance sheet or the statement of financial position is by far the most important financial statement that you currently have in your position. Your statement of financial position is an end result of all the efforts that you put in, and is compiled after taking into account numerous factors.
The balance sheet is to be thoroughly monitored at all times, so that you are able to get the results that you crave here.
Not only does your balance sheet help you in finding out whether your accounting records have been correct during the year, but it also gives an indication to future investors about just how investment ready your business is.
The importance of the statement of financial position can be gauged by just how much interest investors show in it before deciding to invest in your business. No one wants to invest in a business that doesn’t promise the right results, which is why you should go for the right records when it comes to maintaining your financial statements.
If your bookkeeping has been good, your statement of financial position will easily be balanced at the end. However, if your records haven’t been great as such, you wouldn’t be able to balance your statement of financial position in the manner that you want to.
The balance sheet itself is based on the most important equation required for acing accounts. The format for a typical balance sheet consists of the formula Assets= Liabilities + Capital. All the assets that you currently have as a business should be equal to the total of the sum of Liabilities and Capital. Adhering to this equation would help ensure that your records remain balanced at all times.
The income statement is the second most important part of your financial statements. Once you apply for a small business loan, the private lender would also run a look at your income statement. This is because lenders want to see just how much you are making in revenue and the profits you have. Your income statement is the financial paper that lines up all your revenues and expenses to compute the profits for a period.
Most private lenders look for businesses that are making revenues of over $20,000 for a month, which is why this is the first figure that they would see. Additionally, the investors would also want to have a check at your profits, to know whether your organization is really making gains or is under loss. This assessment will help the lender understand your business’s current standing.
Additionally, the lender will also run an eye through your expenses, and the impact they have over your profits. Expenses need to be monitored at all times. This part of the income statement can concern you as well. You ought to know just how much money you are wasting in your current expenses, and the expense heads that you can cut down for more benefits.
The first figure that you get for gross profit in the income statement is computed exactly after you subtract the cost of goods sold from the revenue that you have made. Then you go on to subtract all of your other operational expenses to get the value that you are looking for.
These expenses should be closely monitored so that they don’t get out of hands, and so that you are able to get the kind of results you are looking for from them.
Cash Flow Statement
The cash flow statement is the third most important statement for your business. You have to make sure that the cash flow statement is closely monitored, because it gives you a fair indication of just how your business is doing. Overlooking the cash flow statement can have a detrimental impact on your small business.
Most small businesses fail because they are unable to track their expenses and end up making multiple errors in the way. The cash flow tells you just how much cash you have in your business and what can be done to improve the position of cash in the time to come.
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