Your sign to periodically run 5 accounting reports for better management

In business finance, it is crucial to clarify the facts & provide accurate analysis and reports to investors, shareholders, & even employees. Small businesses are mindful of creating annual financial reports, mainly for filing (and saving) taxes and informing investors about company performance. But using these reports for internal decision-making is often overlooked.

The most common challenge for the companies is to provide financial transparency in accounting reports. To overcome this challenge, accurate accounting reports are prepared. This article starts with the accounting report’s definition and meaning and then lists the company’s crucial accounting reports.

What are accounting reports?

Accounting reports are powerful tools that provide periodic statements on a company’s financial health within a specific time or period. These reports are created using financial data taken from company accounting records. With the help of these accounting reports, you may assess the company’s financial situation and gain knowledge about your company.

As per CBInsights, 38% of founders believe their business failed as they ran out of cash. Running out of money shows terrible financial management, and one of the primary reasons behind poor financial management is not keeping the pulse on your accounting reports. 

So, this is your sign to track these 5 accounting reports to be aware of your company’s financial health. Every report should be prepared for a specific frequency to assess your company. Let’s jump into the details of each report.

 

• Balance Sheet

A balance sheet draws an accurate picture of your finances. It includes detailed information on the company’s assets, liability, and equity at the end of a period. Quarterly making a balance sheet will help you understand your financial obligations to pay. Besides the financial information, you can review the financial growth pattern of your company. 

Plus, it suggests how many resources you have for expansion or sanction purchases. As a business owner, have an eagle eye for cash on hand and bank; it helps you make timely and informed decisions. 

You can compute various accounting ratios by looking at the balance sheet. For instance, the liquidity ratio tells your company’s ability to fulfil its obligation in the short run. At the same time, the debt-to-equity ratio will help you assess the financial risk of your firm. 

 

• Income Statement

The income statement tells the profit and loss your company is making over a period. It accounts for all income, revenue, and expenses, including gross profit, operating, and net profit. Your eyes must be on these three types of gain. 

Gross profit is the sales revenue after deducting the cost of goods sold. All expenses and taxes are still part of the gross profit. Next, an operating profit is a profit left after subtracting all the operational expenses. The net profit is the final profit telling how much your company has earned, including extra income and deducting all taxes from operating profit. 

Preparing income statements monthly or quarterly helps you learn the cost drivers of business expenses. Moreover, you can quickly identify your business’s underperforming and overperforming divisions. Lastly, you can measure the commission earned on sales & other activities. 

 

• Cash flow statement 

The cash flow statement tells the flow of your business’s cash and shows your ability to manage cash in both the short and long term. Preparing a cash flow statement is the first step to ease your cash flow management. It has three categories as follows:

Operating activities include the outflow and inflow of cash once your company delivers a good or service. It accounts for both revenues and expenses. Investing activities consist of the cash flow related to purchasing and selling of assets (tangible as well as intangible). Financing activities comprise the cash flow from debt and equity financing. 

Your balance sheet may show a great picture of all current assets. But running your business will become complicated if you don’t have the cash. 

Similarly, your income statement may show a good profit. However, the profit will only help in running the business with cash. Tracking your cash activities monthly will help you know the source of all income and expenses. Preparing a cash flow statement will help you identify the slow business periods. 

Balance sheets, income, and cash flow statements are the critical financial statements you need to run monthly, quarterly, or annually. Besides this, there are a few reports that you must prepare for better management of the business. 

 

• Working Capital Report

A working capital report is prepared by calculating the current assets and liabilities. It shows how much money is available to run the day-to-day operations of a company. Moreover, by weekly preparing a working capital report, you can assess your business’s liquidity, operational efficiency, and short-term financial health. It will help you quickly identify if you cannot meet your short-term obligations. Moreover, you can timely look for loans and debt collection to mitigate the risks. 

If you have positive working capital, it shows you can pay your bill and invest in business growth. Plus, it gives your employees and supplies the assurance of a timely paycheck. Other than paying the interest payments and taxes, it assures you can run your business in future cash flow challenges. 

 

• Sales Report

Reviving a sales analysis report daily is beneficial for you. The reason is that when targeted sales are achieved, all other things fall into place. You should monitor seasonal increases in sales and revenue of specific products. As a result, you can plan the inventory. Moreover, the supplier may offer enormous discounts for advance and bulk orders. 

A sales report includes detailed information on product lines, customer segments, and sales reps. Also, it contains the total sale volume, discounts, loss in inventory, etc. 

Daily analyzing of the sales report will allow you to identify where sales are dropping or rising. In addition, you can compare it to the previous report to forecast future sales & budget report.

 

With the above five accounting reports, you can quickly assess the broader and more accurate picture of your business; of financial health. But do you have time to analyse your sales report daily or monthly with numbers? If not, then the easiest solution is outsourcing your accounting. 

We at SKB Accounting provide insightful and actionable reports with graphics for a quick and easy understanding of your business. We are integrated with QuickBooks and offer a customised accounting service. Our CFOs provide their expertise to identify the scope of improvement and corrective measures for it.