Well-maintained financial documents are essential to running your business. Poor record-keeping can hold your business back and eventually wreck you. Here are some basics about business financials.
The Key Documents Needed for Business Financials
Three documents make up your financials. One is your balance sheet. The balance sheet shows all your assets, such as property, bank accounts, and equipment. Your liabilities are also included in the balance sheet. Add the assets and liabilities to determine your equity.
The cash flow statement is another vital business financial document. The report details your investing activities, operating activities, and financing activities. The financing activities section lists the cash going in and out of the business because of debt or equity-related activity. The column for investing activities details cash flow from the purchase or sale of assets. The operating activities section breaks down what you’re making from routine operations like sales and expenses.
The profit and loss statement is the most essential document of your financials. Some prefer to call it an income statement. The profit and loss statement helps you craft your budget, make accurate projections, and build a solid business strategy. This statement compiles where the company is most profitable, the source of each expense, and where revenue is coming from.
When to Use a Bookkeeper or an Accountant
There are clearly a lot of numbers to juggle to keep financials up-to-date. Once you find it overwhelming to keep track of everything, it may be time to look into hiring or contracting a bookkeeper or accountant.
A bookkeeper processes payroll, records transactions, and updates documents. The bookkeeper will compare your records with bank statements to ensure accuracy and provide you with a financial statement each month for review. Bookkeepers often take on additional roles of paying bills and sending invoices. Small businesses may delay hiring or contracting a bookkeeper when they can handle these routine operations without it being burdensome.
A small business accountant’s work goes a little deeper into the company’s operation. An accountant prepares reports for government agencies, documents for banks, and financial statements. The accountant files taxes for you and alerts you to changes in tax law. Accountants are well-positioned to advise you on matters like saving and managing debt. Nearly every business should have an accountant since accountants can give needed advice and prevent you from making costly errors with taxes and financing.
Your business financials are a vital part of your business work. Make sure to get the right help and software to keep these documents current.