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What is a financial statement and how to make it perfect?

Milena Duric Investment

A financial statement is a document provided by your bookkeeper, accounting manager or controller. Basically, it represents the balance of the profit of your company.

What does financial statement include?

Generally, financial statement includes:

  • the balance sheet
  • income statement and
  • statement of cash flow

The balance sheet – provides a snapshot of the business’s assets, liabilities and owner’s equity for a given time (preferably once a month)

  1. Current assets – includes cash, stocks and other liquid investments, accounts receivable, inventory and prepaid expenses
  2. Fixed assets – long term use (unlike current assets that are short term use), include land buildings, equipment, vehicles
  3. Current liabilities – short term loans and taxes
  4. Long-term liabilities – bank debt or something similar that is due to more than one year
  5. Owner’s equity – the total amount invested by the stockholders plus the accumulated profit of the business

 

Income statement – represents all the revenue sources and business expenses for a given time period.

Practically, income statement involves:

  1. Goods sold – Materials, salaries and other costs associated with operating (equipment repair)
  2. Gross profit – sales less the cost of goods sold
  3. Operating expenses – office salaries, insurance, advertising, rent – administrative expenses for running the business
  4. Operating profit – computed by subtracting the operating expenses from the gross profit
  5. Net profit before and after taxes

Statement of cash flow – measures financial activity over a period of time and tracks the effects of changes in balance sheet accounts

Here are a few tips from Casper Ravn-Sørensen on how to upgrade your financial reporting process and manage your finances proactively:

What is critical for your business?

You should look closely into your financial statement and you will find there what actually works for your business. The things critical for your business – just give them up, don’t invest your time, energy and money in something that doesn’t give you profit. That is why you should have a monthly planned financial statement that is accurate. So that you could grasp what is good for your business and what is not.

Respect the deadlines

You shouldn’t be late with your financial statement, don’t let anyone procrastinate. This is the most important part of your business and your management decision making. If you and your team do not keep track of finances, your company is doomed to fail.

  • Don’t accept too many changes in a financial statement – figure out how to get all significant items reported in a timely manner. Any additional entries should go in subsequent months

Explanation with every part of the statement

You need an explanation in every part of the financial statement. It is not just important to write down all the costs and profits, you have to grasp them. In that way, the management team is going to make necessary changes for the next month according to the reasons and explanations from the statement. All certified financials have footnotes, you should require that from your bookkeeper, accounting manager or controller. It should include major trends, issues and red flags in your business.

Is the financial statement any good?

Of course it is, with financial statement, you get to:

  • Make predictions about the future
  • Be more efficient in doing business
  • Make all the necessary changes on time

The most important thing is to get accurate results and to devote time to contemplate about the financial statement results. If you would need any advice regarding the financial issues, feel free to contact Casper Ravn-Sørensen. And if you need any financial help, feel free to fill in the form and our Dotcom-Capital team is going to contact you as soon as possible.