There are a number of financial reports that can give information on the business's past, current, and future financial state. The top five financial reports that every business owner has to regularly and yearly review to better understand the business's financial performance are listed below.

• Balance Sheet. It provides a snapshot of a business’s financial position, including the economic resources the business owns or owes and the sources of financing for those resources.

• Income Statement. It summarizes the total revenues and expenses incurred by the business, showing the profitability (net income or net loss) over a specified period of time, usually a month, quarter, or year.

• Cash Flow Statement. It is presented in three sections: operating, financing, and investing activities, and it indicates which areas of the business are generating and using the most cash. One of the best uses for the Cash Flow Statement is to estimate future cash flow, which will assist with budgeting and decision-making.

• Accounts Receivable Aging Report. It categorizes outstanding accounts receivable into groups based on the due date of the invoice, typically current, as well as 1-30, 31-60, 61-90 and >90 days overdue.

• Budget vs. Actual. It can help identify areas that were over or under budget, indicating the ability to hire additional employees. The Budget vs. Actual Report should be prepared on a monthly basis and reviewed with the financial statements to determine if any areas of the business are not meeting expectations and should be investigated further.

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Why are these reports important?

Evaluating financial statements is a critical aspect of managing a business, as it allows business owners to make informed decisions, identify potential risks, and maximize profitability. In addition, there are several reasons why business owners should regularly evaluate their financial statements:

1. Assess profitability: Analyzing financial statements helps business owners determine the profitability of their company by tracking revenues, expenses, and net income. This enables them to identify areas for growth and improvement and make strategic decisions to enhance the bottom line.

2. Monitor cash flow: Regularly reviewing financial statements helps business owners to understand their company's cash inflows and outflows, ensuring they have sufficient funds for day-to-day operations, investing in growth, and meeting debt obligations.

3. Evaluate financial health: Financial statements provide insight into the overall financial health of a business, including its liquidity, solvency, and efficiency. Evaluating these aspects allows business owners to identify potential issues and take corrective actions before they become critical.

4. Benchmark performance: Comparing a company's financial performance against industry standards or competitors provides valuable insights into its relative position in the market. This information can help business owners set realistic goals and develop strategies for future growth.

5. Secure financing: Financial statements are often required by lenders and investors when a business seeks external funding. Regularly reviewing and maintaining up-to-date financial records can improve the chances of securing the necessary financing for expansion or other business initiatives.

6. Improve decision-making: Evaluating financial statements enables business owners to make data-driven decisions regarding investments, resource allocation, and cost management. This can lead to improved efficiency, reduced costs, and increased profitability.

7. Compliance and tax planning: Accurate financial statements are essential for regulatory compliance and tax planning purposes. Regular evaluations ensure that financial records are accurate and up-to-date, minimizing the risk of penalties or fines for non-compliance.

8. Identify trends and patterns: Examining financial statements over time can reveal patterns and trends that may impact the company's performance. Recognizing these trends early allows business owners to capitalize on opportunities or address potential challenges proactively.

9. Enhance communication with stakeholders: Regular evaluation of financial statements enables business owners to communicate effectively with various stakeholders, such as investors, employees, and suppliers. Providing stakeholders with accurate and transparent financial information helps build trust and credibility.

10. Foster a culture of financial accountability: By regularly reviewing financial statements, business owners demonstrate a commitment to financial transparency and accountability. This can encourage employees to adopt a similar mindset, leading to better overall financial management and performance.

Regularly evaluating financial statements is essential for business owners to effectively manage their company's finances, identify opportunities for growth, and maintain compliance with industry regulations. By staying informed about their company's financial performance, business owners can make informed decisions and position their business for long-term success.

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We consistently provide timely and accurate financials and reports (like the ones mentioned above) on a monthly basis, as well as the actionable financial analysis you need to effectively run your business, analyze operations, and guide business decisions. If your business needs support, contact us today to schedule a consultation.