As a small businessman, you already might be keeping track of the company's general fiscal health.
However many business owners are overwhelmed by bookkeeping and choose to avoid it. Therefore they remain unaware of the value and insight into financial reports that are beneficial for the health of a business.
Your financial reports act as essential Key Performance Indicators. These key performance indicators (KPIs) are your tools for monitoring and tracking success in key areas of business performance.
Your accounting reports also give you an overall picture of how well your company is doing. Using the insights provided by your financial reports, you may be proactive in making important changes in areas that are underperforming, avoiding potentially severe losses.
You may choose to outsource or hire an accounting team for all your accounting tasks, but as a business owner, it is necessary you are well-equipped with basic accounting knowledge. This would make the decision-making process efficient.
8 Reports that Every New Business Owner Should Look into
These reports serve as fundamental elements in assisting you as a business owner in obtaining a comprehensive view of your company's books of accounts in sync with your business operations.
1. Cash Flow Statement
What is any business's eventual aim? Isn't it important to have consistent cash flow? So, where can you get these essential cash flow management insights in order to stay on top of your company's finances?
A cash flow statement is a financial statement that shows the income that has been received and expenses that have been paid.
Your cash flow statement presents all of your company's incoming and outgoing transactions over time; right from how you spend money to how you gain it.
The cash flow statement examines your company's net income and accounts for any non-cash transactions from operations, investing, or financing activities to demonstrate to you precisely what happened to the company's cash during that time period.
Three categories of activity are shown on a cash flow statement:
Operations: Accounts receivable, accounts payable, and inventory are just a few of the business tasks you'll need to run your company.
Investing: This entails making long-term modifications to equipment, purchasing or selling assets, and so on.
Financing: This entails taking on debts, repaying loans, and other activities that do not affect your bottom line, but do affect the quantity of money in your bank account!
A cash flow forecast's key advantage is that it allows you to comprehend the impact of future and prospective outcomes, plan for upcoming cash shortfalls, track if the expenditure is on track, and accurately handle surplus cash.
2. Accounts Payable
If a business took too long to pay you, you probably wouldn't appreciate it. Do yourself a favor and pay your vendors on time as well.
Accounts Payable is the term used when a business acquires products on credit that must be paid back within a short period of time. It's classified as a liability and falls under the category of "current liabilities." Accounts Payable is a type of short-term debt that must be paid in order to avoid default.
Your Accounts Payable report will tell you who you owe money to and how much you owe them. You may quickly search up who you need to pay so you don't miss the deadlines if your books are up to date.
Late payments can create conflict and result in late fees and other expenses. Simply pay on time. Some suppliers may even offer you a discount if you pay early.
3. Accounts Receivable
You simply don't work for anything, and your company isn't a non-profit. Part of the struggle is completing the work and mailing the invoice. You must also ensure that such payments are made and collected.
The proceeds or money that the company will receive from its clients who have purchased goods and services on credit is referred to as Accounts Receivable (AR). The credit period is usually brief, ranging from a few days to months or even a year in rare situations.
On the balance sheet, account receivables (AR) are classified as current assets.
The accounts receivable report (A/R) tells you how well you're doing in terms of collections. Keep an eye out for customers who are always late, who used to pay on time but have suddenly started paying late, and who have growing late sums.
4. Profit & Loss statement
The profit and loss (P&L) statement (also known as an income statement) displays your revenue, costs, and expenses over a specific time period. Because the P&L provides the finest perspective of your bottom line or net income, it's commonly used to illustrate business lenders and investors if your firm has made or lost money over time.
Your company's net income will also be used to calculate its taxable income each year. This is computed by subtracting your company's expenses from its total revenue, which can be found in your profit and loss statement.
It's crucial to keep in mind that your income statement reflects sales and expense activities across time, whilst your balance sheet shows your financial situation at a certain point in time.
5. Balance Sheet
A balance sheet shows you what a company owns and owes at any particular point in time. Bank accounts, accounts receivables, and maybe an investment account are examples of assets for small and medium enterprises.
A balance sheet may also include assets such as real estate, computers, equipment, and other tangible and intangible assets that can be sold. Credit cards, business loans, and anything else your company owes are examples of liabilities.
The balance sheet is a two-sided sheet that has three parts (Assets on one side and Liabilities and Equity on the other)
Remember that the left side will always equal the right side as you construct your balance sheet. You have made a mistake if they are not equal. It's as easy as that.
The balance sheet serves as the foundation for the accounting equation. It states that Assets minus Liabilities equals Equity. The gap between what you own and what you owe should ideally be positive and grow over time.
Look at the short-term assets vs short-term liabilities when looking at the balance sheet. You don't want to run out of cash without realizing your assets are illiquid if you have payments due shortly.
6. Stock Report
Stock, also known as inventory, is one of the most important aspects of many businesses.
Inventory moves in and out of your manufacturing and warehousing facilities on a regular basis. It can be difficult to visualize how much turnover is truly occurring. The inventory report informs you how much of your average inventory has been sold in a given time period.
It is critical to keep track of stock movement and shelf life in order to avoid losses due to stale stock.
Tracking and keeping a close eye on the old stock has numerous advantages for a company. Stock reports help business owners make rapid, rational decisions that have a direct impact on their business's growth and profitability.
Which product has the highest profit margin? How quickly do products sell? Which products are the most profitable? Your stock-item profitability report can provide answers to such questions.
Investing in online accounting software that helps in keeping track of inventory and generating reports regarding the same is beneficial.
7. Customers by Revenue
You should look at who owes you money and who gives you the most of it. Your revenue by customer report shows how much money you made from each customer over time. In many industries, freelancers and professional service businesses rely heavily on repeat business. Developing positive relationships with high-quality clients can result in a lucrative, consistent, and healthy cash flow.
However, don't put too much faith in any one source of income. The term "revenue concentration risk" refers to when too much revenue comes from a single source. If losing just one client would ruin your entire business, you need to diversify your clientele.
8. GST/VAT Taxation Report
So, aside from keeping your books in alignment with your business, what is the next most essential element to consider? GST! Yes, GST compliance is amongst the most important aspects of a business, and accurately recording business transactions in accordance with tax laws is critical to staying true to your company.
For Example, take the scenario of India, since 2021, GST-compliant accounting has gained momentum. All Indian businesses are required to formulate GST-integrated invoices.
GST accounting also provides the company with a competitive advantage over its competitors.
However, a handy GST Software plays a major role in taking advantage of all these reports.
Some of the advantages of utilizing GST-compliant software are listed below.
Create invoices that are GST-compliant.
Last-minute filing can be skipped because the software will assist you in filing your returns accurately and on time.
Drawing comparisons and reconciling your accounts with the GST site would no longer be a time-consuming process. T
The reports will be error-free since the applicable taxes for specific commodities will be done easily because the return filing procedure is done through software.
Receive the correct input tax credit for your transactions.
Conclusion:
There are a lot of other financial reports to take into notice but these are basic accounting reports that every new business owner should be knowing.
A GST accounting software is equipped with accounting, payroll, and inventory modules. And it generates these reports quickly without any room for errors.
Therefore a solid accounting system should be at the palm of your hand to get instant access to these reports.
There are many online accounting software and apps available for maintaining your books of accounts.
So you should have one of them to manage your books and get instant access to them anytime and anywhere.
Here is a list of the best accounting software for your reference that might help
Top comments (0)