While some people may wake up in the morning rubbing their hands together in glee at the prospect of organizing financial statements, most of us find the experience an arduous and monotonous process. As transactions take place, receipts and other paperwork can quickly become a disorganized mess, and some may be tempted to stuff a majority of it in a file cabinet somewhere or even make bank shots to the circular file in the corner of the room.
Unfortunately, keeping a solid record of business expenses is vital for the welfare of your business, and if you are built more for action and decisive actions than crunching numbers, you should at least find either someone who is both organized and efficient to manage your important documents, or find statement printing services near you to help with your company’s organization.
There are many reasons why keeping track of your business statements is advantageous to your company, but before we go into those, you should be aware of the four major players in the world of business statements.
While you should prepare a suitable home for any and all income and expense documents, whether on a computer or a physical file (or both!), not all statements are created equal. The following are some of the most important documents for your company:
. The Income Statement
Unless you are a nonprofit organization, your principal purpose as a business is to make money. How can you know if you are doing so if you cannot compare your income and expenses? The income statement is a comprehensive report that details all your incoming funds vs. the outgoing costs to provide a big picture of whether you are making money . . . or losing it.
. The Balance Sheet
Similar to the income statement, the balance sheet performs essentially the same function but limits the snapshot to a specified period of time. It also goes more in-depth as it details all of the company’s assets and liabilities over that period, making it easier to identify where the company stands financially and allowing you to analyze and evaluate trends.
. The Cash Flow Statement
The two above reports give you a pretty good idea of the totals of your income and expenses, but they do not delve into the nitty gritty particulars of where your money is going and when. Enter the cash flow statement, which provides a detailed indication of exactly how your company is spending its money and how much you are allocating to different expenditures. In short, this report breaks down the numbers in the previous two, allowing you to determine where you can cut spending, divert funds, or make other essential decisions if necessary.
. The Statement of Retained Earnings
Given less weight than the other three powerhouse statements, the statement of retained earnings can either appear as its own separate document or may instead be included as an attachment to one of the other statements. When we talk about “retained earnings” for this reporting, we mean money that the company is setting aside from its profits (presuming that it has profits) to encourage company growth. In other words, these are funds set aside over a period of time specifically to improve the company to promote greater profits down the road.
The Benefits of Accurate Retention and Reporting
The Big Four are not the only documents, and you will likely have a variety of receipts and other paperwork to maintain, but doing so will pay off in the long run. Here are a few reasons how accurate reporting and record retention will improve your business:
Company Welfare
If you do not have an accurate depiction of your income, expenses, assets, and other important financial information, how can you tell whether your company is performing well and growing? The better and more comprehensive your reporting statements, the better picture you have of exactly how your business is doing, short-term and long-term.
Identifying Trends
Suppose you have accurate records and statements over a lengthy period. In that case, you can dig deeper into your finances to determine when an initiative worked to improve profits or if the numbers went in the other direction. If you can identify trends and different changes in the company which may influence them, you can identify opportunity areas, and design plans to improve sales and overall company growth, then assess your numbers to determine whether your attempts were successful or not.
Financial Control
If you know exactly where you have allocated your funds and what expenses you have, then you have greater control over your budget. You will know exactly how much money you have available for projects or investments and whether or not there are avenues where you can redirect money without putting your company into a bind. You will be aware of what liquid assets you have to generate quick cash on the fly and if your company can afford to take a risk for the potential of more significant gains or avoid such maneuvers to play it safe.
Building Rapport with Investors and Employees
Having a significant amount of wealthy investors can make a massive difference for your company; however, if they are going to put their money on the line for your venture, they will want to see that you are well organized and know exactly how your business runs and how well it is doing. If you have efficient and transparent statements that show in detail how smoothly your company operates and how much control you have over it, you will build an atmosphere of trust that will encourage more people to jump on your bandwagon.
Similarly, your employees want to know that your payroll and reimbursements are reliable and trustworthy. If your company maintains solid records and pays its expenses and reimbursements accurately and in a timely fashion, it will build a stronger employee base built on an atmosphere of trust and mutual respect.
Tax Time
Whether you like it or not, your business will need to complete tax documents every year. If you are disorganized and missing crucial statements, this process will be particularly unpleasant and require a lot of digging, searching, and investigating, and a failure to report accurate information could result in unfortunate consequences for your company.
If you have all your ducks in a row and all your integral reports near to hand, tax time will be a smooth process with considerably less stress and anxiety involved in the process.