By Haliyma Barrow
Small business financial reports are very important when you are looking for funds from a lender for the purposes of expanding your business operation. These reports should include the following:
A balance sheet – This is one of the most important statements in any small business financial report. It shows a list of the assets and liabilities of your business and financiers will get their first impression about your business from the balance sheet. When preparing this statement, you should clearly place current liabilities and assets from long term liabilities and assets. The equity should reflect the appropriate model for your business such as sole proprietorship, limited liability, partnership or corporation.
A profit and loss statement – This is another important component of your small business financial records. It shows the profitability of your business for a period of time not exceeding a year. It is advisable to preset this statement in comparison to a similar period in the previous year, so that the financier can gauge the performance of your business during the same period and gauge whether your business is improving or not.
Another component of a small business fiscal report is the statement of cash flows. The amount of information that you want to disclose in this report is at your discretion. For your prospective financier to get a clearer picture it is advisable to provide as much detail as possible. This should however be weighed against the cost of preparing such a detailed report especially if you are hiring an accounting consultant to do this for you.
You must show your financier how you came up with your financial report by including notes in your financial statements section. This clearly outlines the accounting procedures that were followed when you prepared your financial records. These will guide your financier on whether enough detail was included in the preparation of the reports or whether they should ask you for more details.
Depending on the way your books are kept, some of these components can be omitted altogether. If you are presenting an interim small company financial report, then the statement of cash flow can be left out.
It is important that you include any supporting documents for your small business financial statement. Documents showing the profitability of your business by product will help the financier get a better picture of which products are making the most income for you. You should also find out how the financier calculates their financial ratios, so that you know which item you can combine without giving up substantial financial details. This is important if your financier is going to look at the net worth or working capital of your small business in order to approve your application.
When preparing your small business financial report for the purposes of financing, it would be a good idea to keep your records in good order. Some financiers will ask an independent certified public accounting firm to go through your financials and corroborate your statements. Small business financial records are important to the growth of any small business and you should give this the appropriate time and consideration.
Haliyma Barrow worked for a student newspaper as a staff reporter at Indiana University of Pennsylvania. Since then Haliyma has contributed a variety of informative articles about business finances such as benefits of annuities on taxes.