Although producing goods and services and optimizing the customer experience should be top priorities, there’s something else that needs your attention. Based on every company’s competent management, we can find accounting reports. Tracking the financial well-being of a business and its growth over time is essential to organize fundamental business transactions, keeping track of invoices and legal purposes. This is where accounting reports for your business come in.
Created centuries ago with the development of trade and commerce, accounting is now the backbone of any business in the financial world.A company needs accounting for growing and flourishing. Further, it facilitates comparison, eliminates ambiguity, and is the only way to disclose a business’ financial state to its stakeholders.
Here we will go over the different types of accounting reports for your business and why you need them.
What are Accounting Reports?
Accounting reports are statements that reveal the financial strength of a business. While some reports show the results of a company’s operations over time, others reveal a snapshot of a company’s financial condition at a specific moment.
Typical instances of accounting reports include balance sheets, profit and loss statements, cash flow, and revenue by customer. There are also consolidated earning statements along with more specialized reports such as accounts receivable aging.
However, all of these reports have the same goal, i.e., to reflect the financial state. Besides, these accounting reports are prepared regularly by the senior management of a company to guide the company’s strategy and facilitate decision-making.
On the other hand, you don’t usually use accounting reports while filing taxes. Still, when used appropriately, they can help small business owners understand their protection tax liability at a particular point in time.
Profit and Loss Statement
Also known as P&L or income statement, the profit and loss statement is the most important report for any business. This report tells you how much money your business is making and a lot more.
A well-run bookkeeping operation comprises details for where you spend and where your money comes from. Consequently, small business owners must look at this report at least monthly.
Moreover, it is good to look at trends, comparing current results to the same periods in the previous year and comparing the most recent month with the last few months.
This will tell you what is working well and what isn’t. As a result, you will be able to focus on the most profitable parts of the business.
A balance sheet gives you a snapshot of what your business has and owes at a given time. For small businesses, assets generally include bank accounts, accounts receivable, and perhaps an investment account.
Furthermore, a balance sheet may include property, equipment, computers, and other saleable physical and tangible property.
Liabilities usually include things such as business loans, credit cards, and anything extra your business owes.
The accounting equation is based on the balance sheet, and it tells us that Assets + Liabilities = Equity. The difference between what you have and what you owe should ideally be a positive number that grows over time.
When examining the balance sheet, make sure to look at short-term assets versus short-term liabilities. If you have payments owed soon, you would not like to run out of cash without even noticing that your assets are illiquid.
Accounts Receivable Aging
Admittedly, you don’t work for free, and your business is not a charity. Doing the work and sending the invoice is just a part of the battle. You have to make sure those payments get paid and collected.
The accounts receivable aging report tells you how well you are doing on the collection. You need to watch out for customers who are forever late, normally pay on time and recently started paying late, and growing late balances from any customers.
If your business is having problems regarding collecting accounts receivable, it might be necessary to have a weekly review of this report to help identify past due accounts.
Further, on identifying these accounts, you can immediately initiate collection procedures to boost business cash flows.
Revenue by Customer
Just like you should be looking at who owes you money, you should also be looking at who gives you the most of it. Revenue by customer reports tells you how much money is made from each customer over a certain period of time.
Further, freelancers and professional service businesses rely heavily on repeat business in many industries. Therefore, building good relationships with quality clients can turn into a reliable, lucrative, and healthy income stream.
On the other hand, beware of putting too much faith in any one source of income. In case too much revenue comes from one source, there can be revenue concentration risk.
Besides, if one client leaves you, that would ruin your entire business. So it is always better to get more diverse in who your business serves. Keep in mind, putting too many eggs in one basket can bankrupt your company.
Accounts Payable Aging
You would not like it if a company took too long to pay you. Similarly, do your vendors a favor and pay them on time. Your accounts payable aging report tells you who you owe and how much.
As long as your books are up to date, you can quickly look and find who you need to pay, so you don’t miss the due dates.
Paying late can sour relationships and may further lead to late fees and other costs. Just pay on time, and you might even get an early payment discount from some vendors.
The Bottom Line
With accounting reports in your hand, you will have the most comprehensive overview of how your business is doing financially, who are your best clients, and the state of your cash flow.
Accounting reports may seem like numbers at a glance. Still, once you learn to read and understand which reports are crucial for running your business, you will make better financial decisions to drive your business forward.
However, keep in mind, accounting reports for your business can be underwhelming. So it is always better to consult an accounting agency near you to get your numbers right. They would be in the best position to guide you on your business finances.