What are the financial statements of a business?
Financial statements of a business are the document providing a business performance in specific areas. The financial documents are the balance sheet, profit-and-loss statement, cash-flow statement, and income statement.
Different types of Financial Statements for businesses
P&L (Profit and Loss) statement
A profit and loss statement refers to the income statement that evaluates the growth prospects and the current financial condition. This statement summarizes the revenues and expenses for a specific period. The P&L shows a profit if there is revenue left after deducting the expenses. While, if the expenses exceed the revenues generated, it is a loss.
Small or new businesses show losses during expansions and launches. However, it is a red flag if there are continuous losses. It is an indication that money is going out. It is time to address these issues early and consider asset protection.
Cash flow statement
The importance of strong cash flow is more with businesses. Startups and small businesses fail due to cash flow issues. Examining the cash flow statement regularly helps your business to stay positive.
The cash flow statement is like a budget statement. It forecasts expenses and revenue for some time. There are variable and fixed costs in a business. The cash flow statement reveals whether a business can handle it or not. It also helps business owners in planning long-term investments.
Tax returns
Business owners know about tax returns before opening their businesses as they file as individuals. Running a business involves asset protection, and keeping the business and personal taxes separate. The tax depends on the type of business entity. Hire CPAs to file taxes. Create growth strategies to benefit your business.
Balance sheet
The balance sheet shows the profit margin and business position at a time. The balance sheet offers a snapshot of the assets and liabilities. The assets include short-term assets and long-term assets, including major equipment and real estate. The liabilities are short-term debts, such as current goods production and business loans that are long-term debts.
Accounts receivable/accounts payable
A vital part of the financial documents is the accounts receivable or payable showing profit margin. It is also known as an aging report. Accounts receivable refers to the funds that you have to receive, and accounts payable refers to the funds your business owes to pay. Generally, if the business does not get paid, it results in unhealthy cash flow and loss of money. Conversely, if you have overdue bills, you are caught. Talk to the financial team and CPA about streamlining operations and managing expenses better.
Owner’s Equity Statement
A business needs an owner’s equity statement revealing the shareholder’s equity. It is the business earnings retained and distributed to shareholders or owners at the end of the period.
Retained earnings enter the company as reinvestment working as asset protection, or it pays business debt obligations.
Users get to know the business’s financial health, operating obligations, and ongoing financial situation. With these statements, you can provide information to any prospective investor. You can identify business performance; consider business changes, identify the trends, and work for continued success.
Drive growth and assure success
With accurate and updated financial statements, find growth opportunities easily. Spot issues, understand the importance of these documents, and identify potential investors and leaders to leverage your business. Hire an experienced team and seek business guidance, they can offer expert help and essential funding information. Financial documents are the path to business success.
