A financial report is the official company document that showcases your business’s performance and financial activities over a certain period. It is usually prepared quarterly or yearly and required by law to be displayed for public view. It’s essential for attracting potential investors, establishing efficient debt management, budget allocation, and understanding current assets and liabilities.
Creating a financial report is a time-consuming task, but if done correctly, it can be extremely beneficial for your business. The first step is collecting all relevant financial information for the reporting period (like sales invoices, purchase orders, expense receipts, bank statements, payroll records, etc). Then, you must compile this data to find the beginning and ending accounting balances of your assets, liabilities, and equity accounts. Be sure to reconcile these balances to ensure accuracy. You’ll also need to determine which accounting framework you’ll use (Generally Accepted Accounting Principles, International Financial Reporting Standards, etc.), which is based on your audience and regulatory requirements.
Finally, you must prepare a detailed financial statement and a management’s discussion and analysis (MD&A) section. The MD&A is not part of the core financial statement but discusses topics like your company’s liquidity and capital resources, results of operations, underlying factors that caused changes in the financial statement items, significant risks, and other relevant business issues. Use plain language and avoid jargon to make the MD&A more accessible for a wide audience. Lastly, be sure to run performance benchmarks using the data from your financial reports against other businesses similar to your own. This helps you identify areas for improvement and sets SMART goals for future performance.
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