Business Reporting - Important Aspects of Running a Small Business

As a small business owner, you want to make sure your business is profitable. You want to know how much money your business is generating and how far you can stretch your credit with your vendors and suppliers. You want to have a snapshot or overview of your business performance to help you negotiate with banks for more funds to expand your operations. Business reporting is therefore an important aspect of running a small business.

Profit and Loss Statement

The most important business report you need at the end of each month is the monthly profit and loss statement, depending on the scope of activities. This is prepared for one month for monthly financial statements and for a three-month period for quarterly financial statements. The income statement shows how your sales or revenues translate into net profit.

Revenue is the amount of sales you made to your customers. Revenue is a net amount after deducting discounts and rebates you have given to your customers. Each sale is evidenced by a customer invoice listing the type of product or service sold and the corresponding value. Gross profit is calculated after deducting costs directly attributable to sales. Gross profit margin is determined by dividing gross profit by sales - this shows the percentage of profit generated by sales to customers. Melbourne Bookkeeping Services

Expenses reported on the income statement are those expenditures you have made in the course of doing business that are attributable to the business. These include general and administrative expenses such as insurance, utilities, and salaries. These expenses are necessary to run your business. In addition, there are selling expenses such as travel, commissions, and advertising that are incurred to sell your products or services.

Net profit is the total profit your business has made after deducting all relevant expenses. This figure determines whether or not your business is profitable. If your business has been losing money, an analysis of your expenses on the income statement will help you determine which of your expenses contributed most to your loss. High net profits suggest high future profits for your business. You can also use the income statement to assess whether or not your business will be able to generate sufficient cash flow in the future.

Balance Sheet

After completing the income statement, an accountant prepares the balance sheet. The balance sheet is a snapshot of your company's financial position at a particular point in time. For monthly financial statements, the balance sheet date is the last date of the month and shows the financial position of the business at that time. At the end of the fiscal year, the balance sheet reflects the company's financial position as of the last day of the fiscal year.

The balance sheet is a summary of the balances in your business. It includes a breakdown of the assets and liabilities of your business as well as your equity as a business owner. The net value of your business is expressed by its equity. This is calculated by subtracting all liabilities from assets. The main function of the balance sheet is to show the net value of the business. Small Business Bookkeeping Services

The balance sheet can be presented in a format that shows the assets in one column and the liabilities and equity in the corresponding column. Both columns then have the same value or are balanced. This gives rise to the concept of a balance sheet. Today's balance sheets are presented in a single vertical section for many companies, with assets first, followed by liabilities and equity.

Cash flow statement

The periodic financial statements prepared by your accountant must include a statement of cash flows. This important statement shows the movement of cash into and out of your business. Cash inflows into your business come from your customers who have paid for products purchased or services received. Cash outflows are primarily due to payment from vendors and other creditors. A net inflow of cash indicates that your business is liquid.

Even if your business is profitable and shows a large net profit on your income statement, if you do not have enough positive cash flow, you are at risk of bankruptcy or business failure. You will not be able to service your debt when it comes due. Cash shortages are a red flag and require immediate attention. If your business is losing cash, your accountant can show you by looking at your cash flow statement. You can discuss with him or her how to stem the cash outflow, such as buying your equipment instead of leasing it.

You can use a cash flow analysis to determine if you need to speed up your customers' debt payments. You could negotiate longer payment terms with your suppliers to delay payments to your creditors. You can get an excellent overview of your company's cash flow situation and take steps to manage cash appropriately to stay both liquid and profitable.

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