The basics of financial reporting for your small business
Getting your head around your business' financials can often seem daunting. But financial statements are a useful way show the financial health of your business.
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Getting your head around your business' financials can often seem daunting. But financial statements are a useful way show the financial health of your business.
Once you get familiar with your financials, you'll be able to use them to gain valuable insights to help manage or grow your business.
Financial statements outline the financial performance of a business. The 2 main types are balance sheet and profit and loss.
When applying for a small business loan, you’ll usually need to provide these financial statements.
A balance sheet is basically a statement of your financial position at a given time.
It outlines your assets (stock, machinery, cash, money owed to you) and liabilities (loans, money you owe). It also shows your net assets or equity.
To get a snapshot of your financial position, take the sum of all your assets and subtract the sum of your liabilities. This will show your net worth.
Total assets – total liabilities = net worth
Accountants can usually prepare a balance sheet when completing a tax return for you.
There are many different balance sheet templates - from basic to detailed. It's worth looking around for one that reflects the nature and scale of your business. A good starting point could be one of the options published by the Federal Government.
A profit and loss (P&L) tells you how much money your business made over a period of time.
It lists your income and expenses. Subtracting your total income from total expenses allows you to calculate your profit.
Total expenses – total income = profit
It’s important to use a profit and loss template that suits the nature and scale of your business. The Federal Government has a profit and loss template that you can download to get you started.
While your balance sheet and profit and loss statements keep track annually, it's also a good idea to stay on top of how you’re tracking on a regular basis.
Monthly or quarterly financial reporting is a good way to check how your business is performing on a regular basis.
Tip: accounting software can be helpful to produce and automate regular financial reports. These can sometimes provide real time financial updates - so you can make necessary adjustments to your business as you go.
This information is general in nature and has been prepared without taking your objectives, needs and overall financial situation into account. For this reason, you should consider the appropriateness of the information to your own circumstances and, if necessary, seek professional advice.