Financial Statements help startup owners to make well informed decisions. They are required to obtain business loans, recognise trends, track receivables, examine debts, identify issues with cash flow, and much more.
Reviewing financial records will assist startups in better plans for the future and achieving business success. Any startup that wishes to ensure the sustainability of its operations must include a financial statement analysis in its long-term strategy.
Table of contents
Financial statements: A startup’s secret weapon
Importance of financial reports for startup
Types of financial reports
Final thoughts
Importance of financial reports for startup
Legal compliance
For tax purposes, all firms must record their income. You can identify strategies to reduce tax liabilities by keeping correct financial reports while remaining legally compliant with the various rules and regulations that businesses must follow.
Informed decision-making
You can better understand the financial situation of your startup by using accurate financial reporting and analysis and audit. Your company’s management team can monitor trends and important business KPIs through financial reports and make wise administrative decisions.
Credibility and transparency
Financial reporting shows more than simply your company’s long-term financial health. It also indicates your commitment to your company and capacity to conduct business in compliance with the best business practices. This assists in building trust with prospective and existing investors.
Strategic debt management
Financial reports outline your company’s financial resources and current assets and liabilities. Debt management is made simpler when you completely understand your company’s finances, including how much money it makes and how much it owes in debt. This allows you to modify your operations to maintain liquidity while making long-term debt payments.
Types of financial reports
Balance sheet
The balance sheet is one of the four crucial financial statements that any company requires. It is also known as a statement of financial position or net worth.
A startup or small business balance sheet is difficult to plan, even if there isn’t much to include. The balance sheet displays the worth of the startup assets you’ve bought, the total debt owed to lenders and other creditors, and any initial investments you’ve made. The date for this spreadsheet is considered from the day you opened the company.
Profit and loss statement/income statement
After finalising the monthly budget and collecting all the essential data, you should be able to complete an Income or Profit and Loss Statement. This statement summarises your company’s operations for a given time frame, such as a month, quarter, or year.
To make this statement, you must list all your sources to get your gross income over that period. Then, mention all expenses for the same time. This statement gathers all your income sources, including your annual profit or loss and the estimated tax you have to pay.
Cash Flow Statement
The cash flow statement, sometimes known as a statement of cash flows or a statement of changes in financial position, is a crucial financial report that informs users of how effectively a company is managing its cash flow.
Users can determine whether a company is generating enough cash to cover its debt obligations and operating expenses using the information in a cash flow statement.
The standard cash flow statement format gives information about a company’s cash from operating, investing, and financing activities.
Statement of Owner’s Equity
It displays the company’s retained earnings at the start and the end of a certain reporting period. Retained earnings are the profits maintained by a company rather than distributed to owners or shareholders.
Retained earnings are frequently used for the company’s general operations or debt repayment. It gives users knowledge about a company’s financial health by demonstrating whether it can continue to operate and pay its financial obligations without needing its owners to contribute more capital.
Final thoughts
After preparing all these financial statements for your startup firm, you can offer a prospective creditor or investor important data that they need to evaluate your business. You can also use these financial statements to identify your startup’s performance trends, allowing you to position your business for continuous success.
You can also work with startup accountants to assist you in preparing financial statements to track your firm’s revenue, expenses, debt, profitability, etc.