What is Financial Statement Examination in Small Business Firm?

What is Financial Statement Examination in Small Business Firm?

Why Do You Need Financial Statement Examination in Small Business Firm?

The objective of every CEO is to take his company from the small beginnings into the big Iroko tree that will be the envy of all. If this result is to be achieved, then there should be a monitory device that will show the chief executive what is working and the areas that need to be strengthened. The profit and loss statement balance sheet should be effectively monitored through the results that are delivered by your accountant.

Though you might not fully understand the technical concepts; having a general idea of your financial standing will deliver the results that would be really beneficial for you and your business at large.

Learn the Elementary Elements

So what should be your attitude to the finances of your small business? Although you have hired the experts who have the required certification to manage your finances, nonetheless, you are expected to learn the fundamentals of financial accounting so that you will not be in the dark as regards your financial standing.

For instance, you should be able to give a perfect answer to the question: what is the financial statement definition?

Many small businesses fail because the CEO is not up in terms of the simple basics of his or her finances. When you know the elementary aspects of the finance, you will be in a position to take necessary steps that will either stop the dip downwards or the steps needed to cash on open doors which happen only on rare occasions.

So what are the basics that we are referring to here? We shall be examining them on an individual basis. After you have got an understanding of all the basics, you are to put all together to form a common front that will determine the progress of the small business enterprise. Let us now consider these basics:

  • Income Statement

The cash flow statement balance sheet and income statement of your firm should be at your firm grip. Understanding the details involved in arriving at the final result is pretty easy here. If you have invested an amount of $X for instance; at the end of the day you are posting $Y, then all you need to do to measure your profit is to calculate all your expenses and sum them together.

Subtract the expenditure from the amount you posted and you will arrive at your profit for the day of the week or the month as the case may be. Some small business executives do this daily as it makes it easy to predict growth.

  • Statement of Retained Earnings

This is yet another financial aspect that you must prepare if you are to get on top of the financial standing in the company. It comes closely after the first statement discussed above. Why is this statement important to the finances of small businesses?

After all, said and done with the profit and loss account, you will need to prepare this statement to know the earnings you can retain over a period of time. This will enable you to know if you are in the best financial position to declare a dividend and pay money to your investors as dividends. When this is settled, you can now transfer the excess to your balance sheet.

  • Your Balance Sheet

Let us now discuss how you can deal with the balance sheet. There are two columns here that are in contrast to each other. The Assets column refers to what you own as a business owner. The liabilities column refers to what you owe on your debt profile.

A healthy balance sheet should result in liabilities added to the equity equaling the assets of the company. If the Statement of Cash Flows agrees with the arithmetic stated above, then one can say that the company is doing well all other things been equal. There should be a balance here in tune with the name of this account.

  • Statement of Cash Flows

Several businesses are making realistic profits in business but yet they are barely managing to keep their heads above the murky waters of depression. If you want your business to remain healthy, you should make efforts at preparing a statement of retained earnings. It is as important as the two statements earlier discussed above.

This is the financial template that is used to compare two periods in time in the life of the business. It might be used to compare results at the beginning of the month compared to what obtains at the end of the particular month to make necessary adjustments.

  • Bringing It All Together

Having gone through all the financial statements above, it is now time to bring all the four together and put all to work in a way that will benefit your small scale business. If you observe the trends, it shows flow from one statement to the other and when you fix all four together, it will form a bond that delivers the true picture of the finances of the business.

This is the way to go about getting the best results on financial records which can be effectively used to measure growth and development.

You are expected to have a broad idea of the elementary concepts of the finances of your business. You will need the expertise of a credible Financial Services Firm to get things properly tidied up. But even at that, it is wise for you as the CEO to be in terms of the elementary concepts of accounting described above.

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