Basic financial statements to obtain from your accountant

How often do you receive a financial report from your accountant? Can you only see a report when it’s time to file your annual tax return (ITR)? Do you sit down with your accountant to discuss financial statements or just look at the bottom line and the amount of tax you have to pay?

At a minimum, you should ask your accountant to provide you with the following financial statements each month: BALANCE SHEET, INCOME STATEMENT, and CASH FLOW STATEMENT.

You should receive these reports in a timely manner so that you can review and analyze your finances and determine if they are actions you should take to improve your operations and finances. You definitely need to set a deadline that your accountant will be required to follow.

scale sheet

The Balance Sheet shows the financial position or the value of your company’s assets, liabilities, and equity at a specific time. It is like a status report that shows the liquidity and financial structure of your company.

The Balance shows whether you have enough funds available to cover your obligations. Being liquid means that you have enough cash and other assets that can be easily converted to cash to pay your current and future (less than one year) obligations. Being creditworthy, on the other hand, means that you will have sufficient funds over the long term (more than one year) to meet your financial commitments as they come due.

Your accounting system must be able to capture the correct balances of your assets (such as bank accounts, accounts receivable, and inventory) and liabilities (such as accounts payable to vendors, wages, and taxes payable) to ensure you get an accurate picture at the end of the day. the month.

The balance sheet also shows how your company’s assets were financed: how much was financed by investors (equity) and how much was financed with money borrowed from creditors (borrowed capital). This information is particularly relevant when you are looking to obtain additional funds from the bank or other lending institutions. They would want to know how much risk is taken by investors compared to the risk taken by creditors.

Statement of income

The Income Statement reflects the performance of your company during a specific period. People typically associate the income statement only with bottom line or net income, but you can learn more by looking at your income statement.

• You can see your sales trend and know if your sales people are reaching their goals.
• You can see how efficient your production is by looking at your direct costs or costs of goods/services sold. What factors are driving your costs? Are you spending too much on direct materials, direct labor, or your overhead?
• You can see if your Gross Profit Margin (GPM) is competitive against other companies in your industry. If you have a lower GPM, you can review your selling price or your direct costs to see where you can improve.
• You can see how much you’re spending on your sales and marketing initiatives and compare it to the sales revenue you’re earning. If your sales and marketing expenses are rising and your sales revenue is still low, you may be able to start considering other strategies.
• You can also see how much you’re spending on general and administrative expenses. If you’re looking to cut expenses, the income statement will show you which areas of your business are consuming too much of your funds and may need to be cut back.

Cash flow statement

A big part of running a business is managing the funds. You need to ensure that your business’s cash inflows are timely and sufficient to cover your cash outflows. A regular analysis of the cash flow statement will allow you to determine the working capital required by your operations. You will also see if your trades are generating sufficient funds or if you need to raise additional funds from your investors or creditors.

Accounting is a service function. You should hire an accountant who can provide you with timely and accurate financial statements. You should be comfortable enough with your accountant to be able to request information that could help you drive improvements in your business operations.