Make Financial Statements Useful With These BOSS Tips!
Knowing how to work with the numbers shown in a company’s financial statement is an essential skill for small business owners. Yet, too many of them have financial statements that are not useful for decision making, inaccurate, or are generated so late that they are no longer relevant. Luckily, the BOSS team has a few tips for upgrading your financial reporting process!
Cash vs Accrual
First, know if you are using cash accounting or accrual.
Cash accounting– Income is not counted until the cash or check is actually received, and expenses are not counted until they are actually paid.
Accrual accounting– Transactions are counted when the services occur, the order is made, or the item is delivered, regardless of when the money is actually given/received.
Each system has its own benefits and tax obligations, and will display the financial data differently.
What’s the point of creating a report, if the data entered is inaccurate? Using inaccurate data can generate some pretty hefty fines from the IRS if you rely on them for tax payments. With accounting being one of the more complicated areas of business, we suggest talking with a financial expert. By putting your financial information in the right expert’s hands, you can be assured that you are getting everything done correctly and in a timely manner. Poor tracking of your income and expenses makes it difficult for even the best tax accountants to prepare your taxes accurately and on time.
Line by line
When you provide services, it is important to know the profitability of each client or job. When you offer products, it is important to know the profitability of each product line. Sometimes, it costs more to pay an employee to do a client’s work then you will actually get out of the client. These discrepancies are crucial to know and can help in deciding to increase prices, or stop unprofitable work.
If you have certain revenue or costs that are the responsibility of separate individuals, have it broken down by each person. If you have four managers, track each ones profitability to hold them all accountable and be able to accurately review their performance.
Financial reports should be received within two weeks of the end of the month at the latest. The longer you wait to generate these statements, the more the value diminishes and the statement becomes irrelevant. Now, this doesn’t mean turn in your August statements on September 18th and expect a report within the next couple of days, but if it takes your bookkeeper two to three weeks after they are given your statements to send you a P&L, make sure to bring this to their attention.
While you don’t have to know everything there is when it comes to finances, there are a few phrases and terms that you should become familiar with to truly understand your financial status, and improve your communication skills with financial professionals you may work with on your way to success. Click here for our own cheat sheet with terms to become familiar with!
Include all available information
When you turn in your statements at the end of the month, be sure to include any notes or receipts you have for the transactions. This can greatly increase the speed in which your work gets completed, and the less questions your bookkeeper has to ask is the less you have to spend. Including every detail you have will also make sure income and expenses are entered correctly and show up on the appropriate report the first time. Ask your bank if they can attach check or deposit slip images to your statements, or even make a note beside transactions that don’t list the vendor on the statement before sending it to your bookkeeper.
Financial reports are the scorecards of your business. Learning certain fundamentals of these statements and having the skill to comprehend them isn’t just up to the experts. Without exact financial reports, you are limiting your ability to make effective decisions that can sink your business.
It’s time to Start With The Boss!
Payroll, Bookkeeping, and Business Services are just the beginning. For more information, email firstname.lastname@example.org, or call us Monday through Friday at (910) 338-1198. We look forward to hearing from you!
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