Why Do Startups And Small Businesses Require Financial Reports Monthly And Quarterly?

Written by Team Bookkeypr | Published: 25 April 2022


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    Why Do Startups And Small Businesses Require Financial Reports Monthly And Quarterly

    For profitable outcomes, startups and small businesses have to stay on their toes in managing employees, selling services and goods, making investments, and obtaining funds. Besides this, you must develop innovative business plans to stay competitive in your niche.

    However, with increasing business complexity, businesses are at greater risk of financial mishaps. The best way to keep everything on track is with increased frequency- monthly or quarterly financial reporting. 

    Remember that day-to-day transactions, expenses, and other financial records are the key to success and minimizing the risk of financial losses. Without financial reporting, you probably hustle to make a profit. Financial reports provide in-depth insight into a business’s financial health and help make better plans. So, let’s understand the importance of financial reporting.

    What is Financial Reporting?

    Financial reporting is a general accounting process to compile financial records of a business. It is done by businesses to find out how to manage expenses and use funds wisely, basically keeping track of how cash flows.

    The key financial reporting items are assets, owner’s equity, liabilities, business expenses, and cash. Furthermore, a financial report is also essential to make necessary business decisions based on available calculations. Banks and potential investors also use financial reports to know whether a business is investible or will it be able to repay loans.

    Types of Financial Statements for Small Businesses

    Financial reports are usually written reports that predict how much money a business spends on manufacturing products/ delivering services, designing, marketing, and funding outcomes. There are four types of financial statements used by small businesses for reporting.

    • Balance Sheet
      A balance sheet shows the financial standing of an organization as of a particular date. Because it only provides financial information for a particular moment in time instead of over some time, the cash flow also serves as a summary of a company’s financial situation.
    • Income Statement
      This summarizes the profit and loss numbers of the company. Business revenues, profits, and expenses are all covered under the income statement. It determines how much money the company has made and lost during a financial reporting period.
    • Statement of Equity Changes
      An accounting report that summarizes the changes in an entity’s equity throughout a standardized reporting period is called a statement of equity changes. This document includes changes in generated profits, rewards, capital investments, capital withdrawals, net loss, and other components.
    • Cash Flow Statement
      The cash flow statement signifies how efficiently you manage the company’s funds. It provides information about cash outflow and inflow as you purchase and receive payments. This statement helps to understand whether you have sufficient funds to run a business.
    Importance of Financial Reporting for Small Businesses
    • Better Financial Decisions
      Businesses can track irrelevant expenses and investment performance in real-time by analyzing the financial report. For instance, with real-time finance reporting, businesses can track best-selling services and goods, re-investment opportunities, growing departments, current asset values, and other metrics. A monthly financial report allows business management to discover roadblocks and opportunities to scale the business for better growth.
    • Manage Debts Easily
      Financial reports provide direct insight into the current liabilities and assets of the company. If you record anything chronologically systematic, you’ll have 360-degree information on the business’s cash flow. Moreover, you can easily track payables, receivables, profit, inventory count, losses, and due and cleared invoices with accurate reporting. This helps to manage debts efficiently.
    • Simplify Taxation Process
      Financial reports are of great help in the taxation process. The International Revenue Service analyzes financial data to evaluate taxable income. This data also helps to ensure you pay taxes correctly and on time. To save time, make sure you prepare a monthly financial report. It also helps minimize the risk of errors as you have a record of each transaction. When you have a correct financial record, the burden of calculating taxes is automatically reduced, and you don’t need to rush at the last minute.
    • Transparency with Creditors and Investors
      It’s a no-brainer that financial reporting helps to improve business performance. But more than that, it helps you to build trust with potential creditors and investors. Remember, investors, shareholders, customers, and creditors review the financial reporting if they are interested in your business.
      For instance, creditors may want to understand the cash flow to know whether your company can clear payments or loans timely. At the same time, investors look for sales, profit, and overall margin to understand whether an investment is fruitful.
      Hence, if you demonstrate an accurate financial report with complete transparency to your stakeholders, they can make a quick decision. It also shows you run a dependable, honest business professionally, and can be trusted for business alliances.
    • Minimize Errors
      Keeping in account the debit and credit rules, all transactions are documented in financial reporting. This ensures that every debit and credit entry is registered and is not an assumption. Financial reporting lets you easily find errors and fix them on time. All you have to do is check the financial reporting trends t and identify mistakes.
    Monthly or Quarterly- Which financial reporting is good for small businesses?

    Both monthly and quarterly financial reporting is excellent for maintaining financial records. But if you need to decide on one, you need to take a closer look at your business needs- what are your business goals, income, expenses, and a lot more. 

    If your business logs multiple transactions daily, then monthly reporting is a recommended way to keep a regular check on pricing, business growth, income, and expenditure for startups and small businesses. 

    With monthly bookkeeping, small businesses can decide promptly about big purchases, marketing budgets, repayment of debts, and expanding business smoothly. However, if the number of financial transactions is fairly less and you have long-term goals, quarterly reports can help to predict financial projections for the coming tenure.

    Financial projections assist your startup in determining the optimal situation to invest in while also indicating when funding demands may arise. By doing so, it becomes feasible to adapt pricing strategies, keep an eye on cash flow, adjust production plans, and make calculated decisions.

    Wrapping Up!
    That’s all about monthly and quarterly financial reporting and why is it crucial for small businesses. As a profitable business, you should opt for financial reporting because it ensures no errors and inaccurate data left unnoticed. 

    You can start by making it a habit to prepare a monthly financial report. A detailed report can help you make an informed decision about your company’s progress and growth trajectory, and use funds appropriately. 

    When making a financial report, it is critical to comply with taxation rules to save time later. If you want an expert financial reporter to help you make financial reports accurately, we can help you. Our team can do it for you while you focus on other important business aspects. For more information, Contact Us

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