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6 Financial Documents Your Small Business Needs 

A small business owner works on financial documents.

It is likely that no small business owner has ever started his or her business by thinking about the documentation that would be required. However, financial documents are critical for a small business owner to understand the financial health of the business to enable it to reach its long-term goals. Financial documents are intended to tell the honest truth about a company’s financial reality.  

What Are Financial Documents 

Financial documents are key financial statements and other documents that provide a formal record of an enterprise’s financial activities, its current financial condition, and ways to plan its future financial performance. They are essential tools to keep a business on track.

The 6 Financial Documents Your Small Business Needs 

There are 3 primary financial statements and 3 additional planning documents that your business needs: 

  1. The income statement. This is the most important document because it indicates whether a business is profitable. It is also known as the profit and loss statement (P&L). The income statement includes all sources of a business’s income and all the direct costs invested to produce products or services that are sold, resulting in a net profit or loss during the reporting period. This document provides insights into a company’s ability to generate revenue, manage costs, analyze operating efficiency, and achieve profits. 
  2. The balance sheet. This document creates a snapshot of a company’s financial condition concerning its assets, liabilities, and shareholders’ equity. It is used to help stakeholders assess a business’s financial stability, liquidity, leverage, and net worth. 
  3. The cash flow statement. This document provides information about the flows of cash into and out of a company, focusing on the sources and uses of cash. It collects insights into a company’s liquidity and whether or not it can meet its current financial obligations. It is typically organized into three sections: operating activities, investing activities, and financing activities. 
  4. The business plan. This critical document creates a roadmap for your business. It is essential to work with lenders and suppliers. It requires a clear articulation of business goals, assets, and operating strategies. 
  5. The budget and budget reports. Every business needs to have an established budget that includes a projection of the business’s financial needs. Budget reports are used with the cash flow and income statements. 
  6. Accounts receivable aging report. This is a list of overdue customer invoices showing when a customer payment was due, how late the payment was, and how to contact the customer.        

The Benefits of Financial Documents 

Financial documents prepared accurately and used consistently, are powerful tools to help a business grow and achieve long-term success. They are used to evaluate revenues, analyze expenses, examine cash flow, monitor inventory, secure financing, evaluate profitability, and plan for taxes. They are used in general to identify and respond to trends, benchmark against competitors, make informed decisions, and plan for the future.

Seek Professional Accounting Assistance 

Contact Orcutt & Co., based in Milford, OH. We deliver comprehensive financial management for small business owners & individuals, providing strategic solutions that best address client needs and aspirations. Our comprehensive accounting services keep you organized and give you the data you need to make prudent business decisions including bookkeeping, payroll, and tax.