Investors need to know how a company is doing financially before they decide to invest – or not. Your financial statements need to give an investor an overview of the profitability, potential for growth, strengths, and weaknesses in your business.
There are different types of financial statements that you will need to prepare, including a balance sheet, income statement, and statement of cash flows.
The Balance Sheet
The balance sheet is like a snapshot of the assets, liabilities, and stakeholder’s equity of your company. The formula for a balance sheet is as follows:
- Assets = (Liabilities + Owner’s equity)
This report will tell an investor how your business funds assets, which can be through a liability such as debt or stakeholders’ equity or such as extra capital that was paid to your business or retained earnings. The liabilities that you will need to list in your balance sheet include debt, rent, tax, utilities, payroll, and dividends payable.
The Income Statement
An income statement isn’t a snapshot, as it shows the income your business earned over a specific period of time. Some of the key metrics in an income statement include the gross margin, net margin, and revenues. The formula for an income statement is as follows:
- Net Income = (Revenue – Expenses)
Some of the types of revenue that you will include in your income statement include interest that your business earns on cash that is in the bank, income from strategic partnerships, income from advertisement displays that are on your property, and rental income from property, for example.
The Statement of Cash Flow
The statement of cash flow shows how your company is managing the inflow and outflow of cash within the business. There isn’t a formula to calculate a cash flow statement, but there are three sections that report the cash flow into your business, namely:
- Operating activities,
- Investing activities, and
- Financing activities.
The professionals at Georgen Scarborough can assist small businesses with the following essential services:
- Compilations – a compiled financial statement that is a “representation of management”.
- Reviews – involving analysis of financial statements combined with inquiries with the management team.
- Audits – the highest level of confidence through methodical review, verification of information and objective examination.
- Complete tax planning and preparation services.