Escape the Financial Reporting Nightmare: A Step-by-Step Survival Guide
If you’re a business owner, most likely, you’re familiar with financial reports.
Accurate financial reports are vital for businesses and entrepreneurs as they provide a clear snapshot of your business’s financial health and performance. These reports help in decision-making, allowing stakeholders to assess profitability, liquidity, and overall stability.
They are essential for attracting investors, securing loans, and complying with regulatory requirements. By analyzing financial reports, you’re able to identify trends, pinpoint areas for improvement, and make strategic adjustments to optimize operations.
But preparing it isn’t always rainbows and butterflies, right? Like any business aspect – there’ll always be hiccups along the way. That’s precisely why we’re here to help you through it. So, let’s dive into it.
What Makes Financial Reports Difficult?
There are many factors at play when preparing financial reports. One of them is the need for meticulous attention to detail and accuracy. That’s because even minor errors can have significant consequences, leading to misinterpretation of financial data and potential legal or regulatory issues.
Aside from that, gathering and organizing financial information from various sources can be complex, especially for businesses with numerous transactions or operations across different regions. This process often involves reconciling data from multiple systems, which can be time-consuming and lead to errors if processes are not in place.
9 Steps To Getting Accurate Numbers
In essence, the complexity of financial reporting arises from the need for precision, thoroughness, and proficiency in accounting principles. But though it’s a demanding task for businesses and entrepreneurs alike – it doesn’t make it an impossible task. Here’s a step by step process.
Step 1: Invest in Accounting Software To Keep Detailed Records
It all starts with organized recordkeeping of all financial transactions, including sales, expenses, purchases, and investments. Software like DEXT simplifies the collection of the source documents for each transaction. Then for your accounting program, we recommend XERO.
Your financials won’t be accurate if your books aren’t tied up to, or past, the period you are looking at. For example, you may think wow – my numbers suck for this quarter. Then you remember that you haven’t completed this quarter’s bank reconciliation and are missing all the entries from the “x” sales system. If you don’t have every single financial transaction reconciled in your accounting software, you cannot get a trustworthy number out of the system.
Here are a few things that should also be included in your accounting program:
A/R (Accounts Receivable) – Do you have outstanding accounts receivable? If you don’t have accurate numbers, you truly won’t know the status of your A/R. The one thing worse than a collection call is a collection call to a client who’s already paid you. So you may want to explore using Plooto or other robust programs like Rotessa that can collect A/R payments and have solid integrations with XERO.
A/P (Accounts Payable) – Do you have outstanding accounts payable? Once again, without accurate numbers, you’ll have no idea. To run a business, you need to know who you owe and when. This is especially critical if you rely on your suppliers to supply you with goods and services to create your sales. You need to be in the good books of these suppliers, so don’t be late paying them! Consider using PLOOTO to pay all your suppliers electronically.
Step 2: Separate Personal and Business Finances
Keep personal and business finances separate to ensure clarity and accuracy in your financial records. Use separate bank accounts and credit cards for business transactions to avoid confusion, making it easier for you to comply with regulatory requirements when it comes to tax preparation.
Step 3: Track Expenses Regularly
Record all business expenses promptly and categorize them correctly. This includes invoices, receipts, and bills for supplies, equipment, utilities, rent, salaries, and any other business-related costs. Don’t wait until the end of each month or quarter to start tracking down all of your bills/receipts. Set up processes so that all of your expenses can be recorded as they happen, on a daily or weekly basis.
Step 4: Outsource Bookkeeping and Payroll Needs
Outsourcing bookkeeping and payroll services can significantly aid in creating accurate financial records by leveraging specialized expertise and resources. Professional bookkeeping and payroll service firms like eGO Bookkeeping have dedicated staff trained in accounting principles and software, ensuring meticulous record-keeping and compliance with regulations.
By simply getting it out of your hands and letting experienced professionals handle it, you’re already minimizing the possible errors or discrepancies you might make along the way — leading to greater accuracy and reliability.
Step 5: Monitor Cash Flow
Keep a close eye on your cash flow by tracking incoming and outgoing funds. This helps you understand your business’s financial health and ensures you have enough cash to cover expenses and investments.
Step 6: Use Accrual Accounting
Accrual accounting is a method that recognizes revenue and expenses when they are incurred, regardless of when cash is exchanged. In other words, revenue is recorded when it’s earned, and expenses are recorded when they’re incurred, regardless of when the cash transactions occur. This stands in contrast to cash accounting, where transactions are recorded only when cash is received or paid out.
Considering this method is important because it provides a more accurate representation of a company’s financial position and performance over a specific period. By matching revenues with the expenses incurred to generate them, accrual accounting provides a clearer picture of your company’s profitability and operational efficiency. Your business’s financial position will be clear – including long-term projects or shorter contracts.
Step 7: Stay Updated on Tax Obligations
Understanding your tax obligations and deadlines, including income tax, sales tax, and payroll tax, isn’t only about avoiding penalties, fines, or legal issues – it’s also necessary to have an accurate view of the financial position of your business.
Timely tax reporting and payments likewise contribute to maintaining the trust of stakeholders, investors, and even regulatory authorities, helping your business build its rapport and reputation.
Step 8: Consult with Financial Experts
Consider hiring expert bookkeepers to help you accurately set up your financial records. Not only do their specialized knowledge and expertise in accounting principles ensure that your records are set up correctly and adhere to regulatory requirements, but they also help you efficiently save time and resources. In addition, they provide valuable insights and financial analysis that will help you make strategic decisions for the growth of your business.
Step 9: Review and Analyze Financial Reports
And, of course, setting up an accurate financial report will never be complete without regular review and analysis. Review income statements and balance sheets for reasonability. These reports will enable you to assess your business’s performance and identify areas for improvement.
With a comprehensive overview of everything happening in your business, you now have a transparent guide you can use to adjust your business strategies and establish trust amongst stakeholders.
Updated Numbers Take Your Business to Greater Heights
As business owners, we understand the significance of every number tied to our business. It’s like a puzzle we’re constantly piecing together to stay on track with our goals. Are we seeing growth? Are our sales figures reflecting that growth, or are we relying solely on gut instinct?
Sometimes, amidst our hard work, we wonder if our business is truly moving in the right direction. Should we consider a loan or expand our team? Maybe we need new equipment or extra hands to keep up with growth. But before we make any decisions, we turn to the numbers. Can we afford to hire more staff? Perhaps a couple of new team members would make all the difference.
Keeping track of these details can feel overwhelming, but that’s why it’s crucial to stay on top of every penny and financial record. It’s what keeps us from steering our business blindly and ensures we’re navigating towards our long-term goals with purpose.
While it’s challenging to juggle all these aspects, maintaining up-to-date financial records is key. And if you ever find yourself in need of assistance with your financials throughout the year, don’t hesitate to give us a call. We’re here to help you stay on course and thrive.