In a world in which revenue streams are abundant, online banking is common, and market saturation is all around, managing your business’s funds is more important than ever, especially if you want your business to survive long-term. The management of your business’s funds should involve four simple pieces of documentation which include:
• A balance sheet
• A cash flow statement
• A statement of financial performance
• An analytical chart for comparing statements
These are instrumental in the management of your business’s funds, assets, liabilities and equity.
The balance sheet will give you an outline of your current and non-current assets, which are property or funds that you own that can be used to pay off your liabilities (debts). The balance sheet will also outline said debts as well as your overall owner’s equity.
The cash flow statement is a record of all cash inflows and outflows that go through the business’s accounting department. This includes business purchases, sales, currency exchanges and account deposits. This will give you a great idea on where your revenue is coming from, and where your money is being spent. Breaking these inflows and outflows to specific transactions allow for a greater understanding as well as a more well-informed decision making ability.
The statement of financial performance will give you an overall view on the revenue, expenses and profit made over the course of a particular financial year, this will show you the business’s performance, as well as where you may have gone wrong. This is extremely important when it comes time to show investors just what your business can do. If you are not in need to please investors then it is still vital to have on record for accounting purposes.
The analytical chart will be your point of comparison between all these statements. It will display all the key elements from the other financial statements as well as compare them with each other. For example, the amount of gross profit to expenses to calculate your profit can be broken down into individual business transactions throughout the financial year. This will allow you to pin-point the exact source of your most profitable revenue streams, or your most detrimental expenses.
In summation, having these four statements greatly increases your business’s ability to manage funds and are a great tool in the growth and expansion of your business. Through keeping records you will be able to make executive decisions within your business which are well-informed and financially beneficial.