5 Essential Financial Documents Every Business Owner Should Be Aware Of

Created On: January 18, 2022

Taking care of the finances is essential for managing a successful business. Small business owners often multitask with various activities like sales, customer services, inventory management, etc. They might get caught up in other operations and often fail to properly take care of their finances. All the business transactions should be recorded accurately and timely to meet the compliances. Failing to do so might bring various challenges at the time of filing taxes and might end in paying for the errors they make. It is necessary to understand how well the business is doing. Without accurate data, it is impossible to scale the business. It is often recommended to hire or outsource the works to a bookkeeper or an accountant. Either way business owners should get all the necessary financial documents from the accountant. They should record all the transactions and analyze the data to provide actionable insights, Optimize the cash flow, analyze product performances, cut back unnecessary expenses and allocate them for new investments.

Accurate Financial documents are the key to solving various monetary problems faced by businesses. Understanding the financial health of a business is important for its long-term growth. Accountants should take care of all financial activities and guide the business owner to make sound decisions.

These are some of the major financial documents to scale the performance of the business.

• Profit and Loss Statement

It is also known as the income statement. This document tracks the profit and loss for your business. It tells your company’s financial conditions by summarizing the expenses incurred and revenue generated over a specific period of time. If the expenses incurred are more than revenue, then the company is said to be on loss. Whereas the profit is what’s left after deducting expenses from revenue.

• Cash Flow Statement

The cash flow statement reports the money entering and leaving the business over a period of time. It helps to understand where the money is from and where it is going. Managing cash flow is an essential part of running a business. Many businesses fail due to improper cash flow management You should optimize the cash flow of your business to minimize shortfall, and also foresee means to manage these shortfalls.

• Balance Sheet

A Balance sheet lists a company’s assets and liabilities. It helps to what your business owns and owes as well as the amount invested by shareholders. The balance sheet gives you a detailed idea about the assets, debts, revenue, liquidity ratio, etc. It helps to compute the rate of return for investments and to evaluate a company’s structure.

• Account Payable & Account Receivable

This financial document is also known as the aging report. It shows all information about the debt owed to your business (Account receivable) and the amount that you owe to your vendors and suppliers (Account payables). It helps to manage your cash flow. Poorly managed AR and PR can cause cash crunches in the business. You might face a hard time meeting the business expenses. Proper payments need to be drafted and debt should be collected on time. With the help of these reports, you could foresee upcoming payments and expenses which helps you be prepared to fund your working capital needs.

• Tax Returns

Businesses often find it difficult to file their taxes on time. Accurate financial documents help to file your taxes without any errors. Even though business owners are familiar with tax filing as they file it individually, filing tax returns for business is not the same. The tax forms vary with your business structure. Hiring an accountant will help you file your taxes accurately. They can help you get maximum returns and create strategies that will help your business grow.

Based on these financial documents, an accountant recognizes various trends and digs down to what’s causing them. This will help you understand what works best for your business and what’s not. We provide accounting and bookkeeping services. Our accurate reports will help you scale your business performance and meet compliances. Are you a business owner who feels your finances need to be taken care of? We’re here to help you out! Contact us now.

Contact us to know more.