How to Create an Effective System of Financial Reports

October 2, 2021

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As a startup company, you need to have your finances in order and be able to produce financial reports that will help you better understand where your business is at. A correct financial report helps you to make decisions about whether or not you should grow, stay the same, or shrink.

This blog post will show you how easy it can be with the right tools. Here is a quick step-by-step recipe:

  • Find what type of accounting software will work best for your needs.
  • Look if there are any free or affordable accounting software options that might serve as a good starting point.
  • Learn about the different types of financial statements so you know which ones to create from day one!

First things first - start with great software to help you to take your finances under control.

Best software for tracking finances

Quickbooks

QuickBooks by Intuit is accounting software that has risen in popularity over the years predominantly in the US. One thing to remember about this program, however, is how steep its learning curve can be and the multiple ways it may take your time or money depending on what option you choose!

Some of our customers think that QuickBooks Online (QBO) is one of the best full-featured accounting software around. It's easy to use and even people without a financial background enjoy using it.

Pricing: starts at $15 a month

Xero

Xero is a smaller and newer player in the cloud accounting space that has been gaining ground against industry giant QuickBooks mainly across Europe, UK and Australia. Xero is loved by its customers with an average review of 4 out of 5 stars on Trustpilot while Quickbooks receives 4.5 in reviews from their clients. More and more small startups and micro-businesses are choosing to use this platform over Quickbooks for its clean user interface which highlights what is important without having to scroll through pages like in other apps.

Pricing: starts at $10 a month

Sage

With Sage Business Cloud Accounting, you can enjoy the benefits of a cloud backend while your data is locally stored and secured. The software has been designed to provide everything from straightforward accounting needs to more complex features such as business intelligence dashboards for quick analysis.

The most obvious benefit that comes with using Sage Business Cloud Accounting is an increased level of flexibility - whether it be in relation to storing customer information or analysing financial reports on different devices at any time. Sage can boast high ratings and 4.6 out of 5 customer reviews due to its strong customer support.

Pricing: starts at $16 a month

Tip: You'll be in good shape if you look not only for a long trial but also for discounts! All of the above-mentioned platforms are very welcoming and ready to help small businesses start their journey with them.

Once you figure out an accounting platform that suits your needs and budget, think about financial reports to keep track of what's going on with your business.

Financial reports for startups

There are essential financial reports that you will need for your startup - Income Statement, Balance Sheet, Cash Flow Statement and Budget vs. Actuals.

A good Income Statement (also known as a P&L report, check our article here) shows how much money is coming in and out of your business each month.

Profit is the most important metric on an Income Statement because it reflects how much money a company made. It's necessary to distinguish between lo Profit and Operating Profit.

Operating profit is the revenue earned through everyday business operations minus costs of goods, services and salaries.

Operating profit is a measure of the ability of a business to support itself. For businesses heavily stuck in debt, a good operating profit can be an indicator that they will eventually work themselves out from their liabilities given enough time and effort. Fluctuating operating profit numbers, on the contrary, might be indicative of impending bankruptcy or the need to change something about the business in order for it to turn around and become profitable once again.

Profit is calculated as Operating profit plus non-operating income and expenses. This paints a full picture of the business’ profit and loss generating activities – including investments, the interest charged, interest received and taxation.

A good Balance Sheet will show what Assets and Liabilities your company has as well as Equity - how much has been invested into it at any given time.

It also shows in practice how risky the business is for investors.

The balance is achieved through a simple formula:

Assets = Liabilities + Equity

First of all, a Balance Sheet shows the business' worth in terms of its Assets. An Asset can be anything from cash to an investment, and the value changes depending on whether it's increasing or decreasing.

An Asset can be worth more or less than what was originally paid. If an investment, for example, increases in value, the Balance Sheet shows this increase to represent surplus cash. Conversely, if you are forced to sell an asset like equipment because it has lost its use-value and/or become obsolete due to technological advances since the purchase date, any reduction in Assets on the Balance Sheet will reflect these losses.

The Balance Sheet is a powerful tool to track your Liabilities as well and see which ones you can pay off over time. The ratio of Debt-to-Assets on the Balance Sheet will signal how risky it would be for investors if they invest in your company.

Finally, Equity is simply the money put into a business: you, as an owner of the company, can invest your own cash and shares you sold to investors. A high ratio of Equity to Liabilities could be indicative of a strong and healthy company without much debt on its books; however, if this number begins decreasing it may indicate trouble with getting fresh investment capital for new projects off the ground.

Cash Flow Statements show how much cash is coming into and out of your business on a monthly basis.

The Cash Flow Statement is different from the Balance Sheet and Income Statement because it only takes into account cash money activity; it does not account for non-cash activities such as sales or purchases on credit or depreciation. It is presented with three sections: Operating, Financing and Investing activities, which indicates which areas of business are generating and using the most cash.

One of the best uses for a Cash Flow Statement is to estimate future cash flow which will assist in budgeting and decision making. The reason? It helps you plan ahead by forecasting your financial status, thus allowing you to be more proactive with regard to decisions that are made while taking into account all possible outcomes.

Last but not least, pay close attention to your Budget vs. Actual numbers.

This report will allow you to see if your company's actual spending and revenue generation from the Income Statement is meeting the projections in its budget. If it isn't, there may be issues with how well-developed the planning process was at the beginning of this period or some underlying problems that need addressing. This can be easily put under control with LiveFlow.

With LiveFlow, you can stay a step ahead of your manual work and automatically organize all of your numbers in one place. You can connect your accounting software with LiveFlow’s built-in spreadsheets and make more informed business decisions and be better equipped when making big changes needed for your business on the fly.

To sign up, click here.

Budget vs Actuals

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