Finance is the most thought of aspect in any business, be it small or large-scale. Financial records can be effectively maintained through this concept. It comprises all the essential legal documents which provide a clear understanding of the financial position of a company. These statements help the management to make decisions on forecasting, planning, budgeting, etc. A significant point to consider is that they may be confidential and not open to the public.
Need for Financial Reporting
These reports are not only utilized for business forecasting purposes, but hold significance for entities who are responsible for supporting the business viz. banks, investors, shareholders, creditors, and suppliers. Banks review these statements to ascertain the company's capability to repay loans. Investors may need to know what the organization's profit margin and outlook is, and creditors and suppliers may demand for the credit history, in order to decide whether to financially deal with the company.
People running small businesses are not sure if they need to maintain and deal with such records. Regardless of their size, businesses will certainly have financial goals, and financial reporting would guide you accordingly, by tracking the cash flow and turnover. Also, better decisions can be taken to increase profit margins.
Types of Statements
The most important statement is a balance sheet, which shows the organization's financial position in terms of its assets and liabilities. An income statement shows the company's revenues and expenses. The purpose of this statement is to show whether the company made or lost money. A statement of retained earnings is utilized for indicating the variations in a firm's retained earnings, which is a part of net income. The statement of cash flow breaks the analysis down to functioning, investing, and financing activities. The results of all these statements are invariably for a specific time period i.e. annually, quarterly, or monthly.
Preparing Business Reports
Utmost care should be taken when it comes to writing business reports; as these are legal, corporate, confidential, and important documents containing information about the company's financial position and statistics. If you want to know how to write one, you need to prepare a sample first, by referring to some business writing documents, and then make the final copy after consultation with the company's professional advisers. The report should be made in such a way that it not only serves the purpose of showing the financial position of the firm, but also enables the management to take well-planned decisions and assist the problem-solving process. Most companies get these reports drafted and finalized by professional accounting firms.
Financial transparency and accountability is the key to successful running of a business and helps to avoid costly breakdowns.