This is one area that many entrepreneurs neglect. It is seen as an area that doesn’t produce income. Instead, it seems to create an expense that is not needed. In addition, many entrepreneurs, while being good at marketing, advertising, sales, and managing inventory, simply don’t understand this area of the business. The important thing to remember is that financial reports help you manage your business. You can get away without financial reports for a while, but it will eventually catch up with you.
When you go to a bank, they will want to see your income statement and balance sheet. Unless you stay on top of the necessary record keeping it is virtually impossible to provide these reports. While you may be able to provide prior year tax returns, the fact that you don’t have interim financial statements sends a red flag to a lender that you are not managing your business. This is particularly true as your business grows.
Accounting or bookkeeping activities generate the data needed to produce standard financial reports. Every time you make a sale, write a check, purchase an asset, invest in your business, or borrow money, you are creating a transaction that needs to be captured and properly recorded so that the transaction is appropriately reflected on your financial statements. Even before you open your doors for business you have created activities that need to be recorded. You have created assets by investing in your business. The purchase of inventory, fixtures, paying deposits for rental or utilities all are activities that create assets on your balance sheet. You will want to show your investment on your balance sheet as well. Lenders like to see that an owner has invested funds in their business. If you’ve borrowed money to finance part of your start up, you will record a liability for your balance sheet.
The balance sheet, income statement, and cash flow statement are part of your business plan projections. Establishing a system to produce these reports, on an ongoing basis, could make a difference in your success or failure.
If you don’t have a good understanding of the accounting process, get help from an accountant or bookkeeper. Our Executive Director will be happy to assist you. All of our services are provided at no charge.