Whether you are a small business or large, financial reports should play a vital role in the running of your organization. They serve as powerful tools for business owners, directors, lenders, and other stakeholders, providing valuable insights into a company’s financial health, performance, and overall success.
So what do you need and why? Here, we shine a spotlight on the specific financial reports businesses should have to drive success.
1. Balance sheet
Also known as a statement of financial position, the balance sheet shows the company’s assets (what it owns), it’s liabilities (what it owes), and the equity (the amount invested in the business).
It provides a snapshot of the organization’s financial position at a specific point in time, outlining what it is really worth and enabling interested parties to make informed financial decisions. It also offers businesses a reality check and can highlight if the company is in trouble.
When banks analyze balance sheets, they prefer to observe a current ratio of at least 1.5, indicating that a company possesses 1.5 times more current assets (such as cash and receivables) than its current liabilities. This demonstrates better liquidity and the ability to cover short-term obligations.
2. Cash flow statement
Essentially, a cash flow statement allows companies to see the amount of cash entering and leaving the business over a set period of time.
It tracks three key aspects – operating activities (regular business activities), investing activities (investment gains and losses), and financial activities (capital raised externally) – and can be used to analyse the company’s financial health. It can also help business owners forecast, plan, and adjust strategies.
3. Income statement (profit and loss statement)
A key financial document for all businesses, the income statement allows a business to see exactly how profitable it is, as well as its revenue (minus losses and expenses), over a specific period.
Businesses need an income statement to assess their financial performance, identify trends, determine profitability, and make informed decisions about pricing, expenses, and overall business strategies.
4. Forecasting
If you’re looking to gain insights into future performance and plan ahead, a forecasting report can help.
Businesses can use historical data to make informed, strategic decisions based on revenue predictions and expenses. It can also help anticipate future market movements so your organization can stay ahead of the competition.
If you’re looking for help with creating your financial reports, our experts can help. Get in touch today here.