Financial statements are not the same as bank statements. They are crucial if you are looking for investment and, depending on the structure of your business, you may need to submit one as a legal requirement at the end of your financial year. Here we explore what a financial statement involves, why you might need to prepare one, and what should be included.
What is a Financial Statement?
A financial statement sets out the financial activities of a business. It can be used to present to an investor, a government agency, or for tax purpose, or it can quite simply be used to help see a clearer picture of the business so that better decisions can be made.
Financial statements are important because they display the financial health of a company. For investors, they can help to show whether a loan could be repaid by setting out the cashflow position. Generally you won’t be considered by an investor unless you can provide them with a financial statement.
What goes into a Financial Statement?
Cash flow forecasting is one of the main components of a financial statement, as are a balance sheet and profit and loss forecast.
The balance sheet provides a snapshot of the assets, liability and equity of a business. It shows how well a company is performing and how stable it is. All companies registered at Companies House must submit a balance sheet on an annual basis.
The cash flow forecast provides clarity for a business. By looking ahead and seeing how much cash the business has at hand, it is possible to make better informed decisions, and also prompt action should issues appear to be on the horizon. Forecasts are useful for future planning, perhaps when an investment in new machinery or technology is on the cards, or when taking on new staff.
The profit and loss statement is another financial statement that will assist with important management decisions. It sets out the precise figures that represent the financial position of your business. Sometimes it can provide a stark awakening, for example where a business thinks in terms of turnover and margins, but doesn’t necessarily factor in costs, and may not perhaps realise that profits are not as high as they might have thought. This statement will show total sales, the cost of those sales, gross profit, expenses and net profit or loss.
Need help preparing a financial statement? Talk to Office Assistants.
If you are preparing a financial statement for the first time, and could use some expert help, why not call upon Office Assistants?
We have extensive experience of helping businesses not just with preparing financial statements, but also ensuring compliance with all Companies House and HMRC requirements.
To learn more about our services that are designed to keep you organised and compliant, you are welcome to get in touch.