Financial reporting in Small business – The purpose (part 2)

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Financial reporting is used to provide information for decision making. The purpose of financial reporting is to give you an in-depth analysis of your business’s performance. The reports help with business valuation, predicting future cash flow, and investment planning. 

The transactions in your reports show the financial effects of your decisions. Some reports are for internal use while others are used by outside entities. Investors, lenders, and government agencies often look at your business’s financial reporting. You may need to implement internal controls over financial reporting for outside entities to ensure accuracy. 

Use a consistent method for each report you prepare. That way, you can easily compare figures from different reports. Financial reporting gives you a clear view of performance. It creates transparency, which gives an accurate understanding of your business’s health. 

You should be able to answer the following questions with financial reporting: 

  • Are your prices effective? 
  • Is your business growing (earning more than in the past)? 
  • Which customers spend the most? 

Bookkeeping is not the most exciting part of owning a business. But, since you have to record transactions, why not take advantage of financial reporting? Set aside time each month to compile and review financial reports, and use what you learn to make smart decisions for your business. 

The objective of financial reporting is to track, analyse and report your business’ income. And that’s what your businesses financial statements provide a general purpose to inform about the ability of a business to generate a profit.

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