Financial Statements Tell Your Business’s Story
Spreadsheets of your company’s finances are great, as far as they go. They definitely tell one part of your company’s story but just one part. To give someone the full and complete story of your company’s financial status, you need to show them a financial statement.
Financial statements, prepared for you by an independent party, are a detailed, carefully organized report of the financial activities and overall position of your company and will help you make informed strategic decisions about your business. Additionally, this report is credible with outside parties, such as investors and lenders, and gives them unbiased information about your company.
Sound financial statements allow us to understand where the company is now, they allow us to get attainable financial goals, and they serve as KPIs related to future performance.- Brian Kerrigan, Advisory Partner
These are the typical components of financial statements:
Income statement. Also known as a profit and loss statement, the income statement shows revenues and expenses for a specified period. To help show which parts of the business are profitable (or not), it should carefully match revenues and expenses.
Balance sheet. This provides a snapshot of a company’s assets and liabilities. Assets are items of value, such as cash, accounts receivable, equipment and intellectual property. Liabilities are debts, such as accounts payable, payroll and lines of credit. The balance sheet also states the company’s net worth, which is calculated by subtracting total liabilities from total assets.
Cash flow statement. This shows how much cash a company generates for a particular period, which is a good indicator of how easily it can pay its bills. The statement details the net increase or decrease in cash as a result of operations, investment activities (such as property or equipment sales or purchases) and financing activities (such as taking out or repaying a loan).
Retained earnings/equity statement. Not always included, this statement shows how much a company’s net worth grew during a specified period. If the business is a corporation, the statement details what percentage of profits for that period the company distributed as dividends to its shareholders and what percentage it retained internally.
Notes to financial statements. Many if not most financial statements contain a supplementary report to provide additional details about the other sections. Some of these notes may take the form of disclosures that are required under Generally Accepted Accounting Principles — the most widely used set of accounting rules and standards. Others might include supporting calculations or written clarifications.
Financial statements tell the ongoing narrative of your company’s finances and profitability. Without them, you really can’t tell anyone — including yourself — precisely how well you’re doing. We can help you generate these reports to the highest standards and then use them to your best advantage.
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