Financial statements are a set of reports that provide information about a company's financial position and performance. They are prepared using generally accepted accounting principles (GAAP) and are based on the company's financial records. The reports help you to analyze the overall financial health of a company.
As a startup, you're probably aware of the importance of financial reports. But which reports are the most important to keep an eye on? In this article, we are going to learn about the list of most important reports for every startup and 3 financial statements that are most important.
Greatest challenge when founding a startup
Source: First site guide
1. Business startup budget
A startup budget is a financial plan that outlines the projected revenues and expenses of a new business. It is a key component of a business plan, as it helps the entrepreneur to understand the financial needs of the business and to plan for its future growth. The budget should include detailed information on the sources of revenue and the types of expenses that the business is likely to incur. This might include the costs of marketing and advertising, the costs of hiring and training employees, and the costs of purchasing materials and supplies.
The startup budget should be regularly reviewed and updated as the business grows and changes. This will help the entrepreneur to track the performance of the business and to identify any potential financial issues before they become a problem. However, it is important for business owners to review the financial plan for startup business and understand the financial statement example, and financial plan for startup business example before starting the business.
Source: Vecteezy
Financial statements help to get a complete understanding of a company's financial position.
2. Startup cost worksheet
A startup cost worksheet helps entrepreneurs to understand the costs associated with starting a new business. It is an important part of the business planning process, as it helps the entrepreneur to identify all of the costs that will need to be covered in order to get the business started.
The worksheet should include a detailed list of all of the items that the business will need to purchase in order to start operating. This might include facilities costs, such as rent or a mortgage payment, deposits on insurance and utilities, and any fees associated with setting up the business's physical location. The worksheet should also include the cost of office equipment, such as computers, phones, and other technology and the costs of supplies and advertising materials, such as signs and business cards.
The worksheet should include any legal fees or costs associated with obtaining licenses and permits, as well as any fees associated with setting up a website or email account
This report can help the small business owners to plan for the financial needs of the business and make informed decisions about how to allocate their resources.
3. Balance Sheet
A balance sheet is a financial statement that displays a company's assets (equipment, prepaid expenses, patents, cash and other valuable properties), liabilities, and equity. It tells you how much money your company has and how much it owes to others. It gives you an overview of the business resources that are well utilized. Keep this report updated so you know what's worth investing in and what needs to be cut back on. Moreover, small business owners can use this report to gauge debt to equity ratio.
4. Cash Flow
A cash flow statement is a financial statement that shows the change in cash and cash equivalents over a given period of time. This report shows how your company is managing its money: both now and in the future. It helps small business owners to evaluate whether the operations are financially stable or not. Hence, it can help you make informed decisions about where to invest your money and how to pay your bills on time.
It includes the following five main components:
1. Operating activities
This section shows the amounts of money spent on running the business, such as salaries, rent, and utilities.
2. Investing activities
This section includes things like buying or selling new equipment or investing in stocks or bonds.
3. Financing activities:
This section covers any sources of funding used to purchase assets or pay off debt.
4. Discretionary spending:
This section shows how much money was spent on things that don't have a direct impact on the company's profit (like employee benefits).
5. Net income:
This is the final figure after everything else has been subtracted from it, showing how much money is left over for the company to spend or invest.
5. Income Statement
A Profit and Loss (P&L) statement is a financial document that gives you a summary of the cost of sales, operating expenses, revenue, and gross margin incurred within a specific period. Income or P&L statements are fundamental to GAAP (Generally Accepted Accounting Principles). Moreover, it shows how much profit you are making and how much money you are spending over a certain time period.
The income statement tells you how much money your company made in each quarter or fiscal year. It can also help you determine whether your company is profitable. Make sure to track changes over time so that you can take action. Hence, the income statement is one of the most important financial reports irrespective of the size of the business.
To create a P&L statement,
You will need to start by listing all of your revenues for the period in question. This can include sales of products or services, as well as any other income sources, such as rent or interest.
Next, you will need to list all of your expenses for the same period. These can include things like the cost of goods sold, wages and salaries, rent, utilities, and other operating expenses.
Now, simply subtract your total expenses from your total revenues. If the resulting number is positive, you have made a profit. If it is negative, you have suffered a loss.
6. Break even analysis
A break-even analysis helps a business owner determine at what point their business will start to make a profit. It is based on the relationship between a company's fixed costs, variable costs, and revenue.
A break-even analysis can be helpful for businesses that are trying to determine the right price for their products or services, or for businesses that are trying to understand their profitability at different sales volumes. It can also be useful for businesses that are trying to determine how much they need to sell in order to break even.
First, you will need to first identify your fixed costs. These can include things like rent, insurance and salaries.
Next, you will need to identify your variable costs. These can include things like the cost of raw materials and the cost of labor.
To calculate the break-even point, you will need to divide your total fixed costs by the difference between your selling price and your variable cost per unit. This will give you the number of units you need to sell in order to cover your costs and start making a profit.
7. Sources and Uses of Funds statement
A Sources and Uses of Funds statement is a financial document that shows the sources of funding for a business and how those funds will be used. It is often used by businesses seeking financing, as it helps to demonstrate how the funds will be used to support the business's operations and growth.
To create a Sources and Uses of Funds statement, you will need to list all of the funding sources that you have available to you, including any collateral, investments, or other sources of capital. You will also need to list all of the uses of those funds, including startup costs, working capital, and any other expenses related to the business.
Source: Finance monthly
It's also important for startup companies to carefully analyze the accounting behind the financial statements to ensure they accurately reflect the true state of the company's operations.
To conclude, financial reports are a key source of information for external stakeholders, such as investors, creditors, and analysts, to assess a company's financial performance and health. The balance sheet, income statement, and statement of cash flows are the primary financial statements used to communicate this information.
Also, you can opt for outsourcing your work to IBN technologies as it provide expert guidance on financial matters and accounting. They can also help you save money and time.
FAQs
- 1.How many financial statements are there?
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There are four important financial statements: The balance sheet, the cash flow statement, statement of shareholder’s equity and the income statement are important types of financial statements.
- 2.What is the importance of financial statements?
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The financial statements provide a detailed view of a company's financial performance and help stakeholders make informed decisions about the company.
- 3.What are the important items shown in financial statements?
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The financial statements will show revenues, taxes, accounts payable, short term debt, costs of goods sold, marketable security, long term debt, operating and financing activities and cash flows from investing.
