Financial statements are more than formal reports they are really important tools that show the financial health and stability of your business. Whether you are trying to get a loan planning to expand your business or just want to know if you are making a profit financial statements give you the information you need to make decisions.
At Edith Alvarado CPA – E.E. Accounting Solutions LLC we help business owners with their statements. We want to help you understand your statements so you can be confident in your business. When your financial statements are accurate you can follow the rules. Show lenders that you are responsible. This helps you build a foundation for your business to grow.
What are statements and why do they matter?
The three main financial statements that most businesses use are:
• The Balance Sheet
• The Profit and Loss Statement
• The Statement of Cash Flows
Each of these reports has a purpose.
The balance sheet shows what your business has what it owes and what the owner is worth at a point in time. The profit and loss statement shows how money your business made or lost over a certain period. The cash flow statement shows how money is moving in and out of your business.
These reports together give you a picture of your businesss finances.
Good financial statements help you make decisions.
Without financial statements you might make decisions based on guesses instead of facts. For example your business might seem like it is making a profit. You might not have enough cash because you are not managing your cash flow well. Looking at your statements can help you see patterns like if your expenses are going up or your profits are going down.
For example a store might look at its profit and loss statements and see that the cost of the things it sells is going up. This helps the owner negotiate prices with suppliers or change how they manage their inventory before they start losing money.
Clear financial reports turn numbers into information.
Financial statements are necessary for loans, investors and growth.
Banks and investors really want to see statements when they are deciding if they want to give you money. When you apply for a loan they usually ask for:
• A balance sheet
• A profit and loss statement
• A summary of your cash flow
If your financial reports are not complete or are a mess it can take longer to get a loan or make you seem trustworthy. If you have financial statements it shows that you are responsible and can manage your business well. This helps you when you are talking to lenders and makes it easier to get loans.
Accurate financial reports also help you follow the rules and reduce the risk of problems.
Financial statements are important for taxes and following regulations. If you make mistakes in your reports it can cause problems when you are doing your taxes or if someone is reviewing your business.
For example if you say a short-term loan is a long-term loan it can make your business seem different than it really's. If you record income incorrectly it can affect how taxes you owe.
Having a CPA look at your statements ensures that they are correct and follow the rules.
It is really important that financial statements are formatted clearly and consistently.
A balance sheet should be easy to read and have:
• Assets separated into term and long-term
• Liabilities separated into short-term and long-term
• The owners equity clearly shown
A profit and loss statement should:
• Have income separated into categories
• Have operating expenses separated from expenses
• Clearly show the net income
When your financial statements are formatted well it is easier to read and understand them.
Good financial statements help you plan for the future.
When you have financial information you can:
• See if you are making a profit
• Keep an eye on your expenses
• Decide if you should hire more people
• Make a budget
• Plan for the future
For example looking at your financial statements from past years can help you see patterns like if you make more money at certain times of the year. This helps you plan for those times. Make sure you have enough staff and inventory.
Financial statements are not about the past they help you plan for the future.
Frequently Asked Questions
Q: How often should I make statements?
You should make statements every month and review them every quarter.
Q: Do I need statements if I have a small business?
You do not have to have statements by law but it is a good idea to have them so you can manage your business well.
Q: Can I use accounting software to make statements?
You can use software to make reports. You have to make sure the information is correct and accurate.
Q: Why should I have a CPA look at my statements?
A CPA can make sure your financial statements are correct follow the rules and are accurate.
Clear financial reports can really help your business.
Accurate financial statements give you the information you need to make decisions help you follow the rules and support your businesss growth. When your financial information is organized and reliable you can be confident in your business decisions.
At Edith Alvarado CPA – E.E. Accounting Solutions LLC we can help you with your statements. Our goal is to help business owners understand their position and have professional financial reports.
If you want statements that are accurate and reviewed by a CPA you should schedule a meeting, with us to talk about your needs.