Financial reporting is the best way to mitigate risk, avoid crushing debt, and ensure the long-term health of your business. Here are common mistakes I’ve seen that must be corrected in your small business.
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As a business owner, do you have monthly financial statements for review within seven to 10 days after the end of each month?
Are your annual financial statements and corporate income tax returns finalized within two to three months after the end of the fiscal year?
Do you have a documented business plan with projected financial statements that is updated at least annually AND that is actually followed?
If you answered “No” to these questions then I suggest that you are behind the wheel of your business vehicle driving down a busy road without the benefit of rear view mirrors, you have a windshield that is covered in mud so that you can’t really see and don’t have even a true feel of the road and its bumps that you are driving over.
It is a dangerous practice.
Financial statements/reports serve many purposes. The fact is that their value diminishes over time. For statements to have value they must be accurate, up to date and complete.
No one wants to get their newspaper or newsfeed 6 months after the events have happened. With modern technology, we are accustomed to having news flash around the world within seconds and there is no reason why our business reporting and tracking information can`t be handled the same way. To have real value, statements must also be timely.
What are the critical pieces of information to review and understand?
These are just a few areas that every business owner should understand and constantly review. So where do you get this information? There are four reports that you should be given by your accountant/bookkeeper/CFO or, if you are an owner/operator you should be able to pull these yourself from your accounting software.
These four reports will provide critical information and guide decision making for your business.
Being a business owner doesn’t automatically mean you know how to create or read these reports, but as a business owner it is your responsibility to understand how your decisions impact the short and long term financial health of your company.
It is advisable to hire a bookkeeper, even part-time to start with. Set clear expectations when you require a copy of each of the reports.
You are not expected to spend years studying how to create and interpret financial statements, but it is your responsibility as a business owner to bring people into your team that are good at the things you are not, and use them to help you understand the areas in which you lack knowledge.
Costs are often tight and many of these experts are available on a part-time or as needed basis.
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