Even though you may already know the importance of financial reports for your business, you may be unaware of its untapped power and potential, especially when they are prepared using financial reporting software.

In reality, small business financial statements are essential pillars of contemporary companies. A degree of insight provided by financial analysis and reporting assists companies in maintaining their regulatory compliance while also simplifying their revenue and expense-focused efforts across their organizations.

When you automate the expense reporting process, you can communicate critical information both internally and externally. Also, use metrics and insights to make significant changes to the area that allows your company to operate smoothly. Accounting reports such provide a summary of your company’s past transactions and where it is now.

Financial forecasting is sometimes required when it comes to running a company, and you cannot do so until you know how much money is coming in and how much money is going out. By preparing balance sheet reports, you can get an actual idea of the financial position of your business on a particular day.

When businesses are not using any automated software to prepare accounting reports, businesses collect more data from various departments and systems. Financial reporting teams must deal with an increasing amount of data reconciliations, spreadsheet searches, report consolidation, mistake repair, reviews, approvals, and other tasks. 

Not to mention the hassles and wasted hours caused by manual activities requiring many individuals throughout the process—from possible copy-and-paste errors to updating various spreadsheets to handling reviews and comments from multiple PDFs. And therefore, we can say it is a must to use financial reporting software to generate small business financial statements.

But before looking at crucial reports, let’s take a better understanding of what financial reporting is.

A brief introduction to financial reporting

Financial reporting refers to established procedures for providing stakeholders with an accurate representation of a company’s finances, including sales, expenditures, profits, capital, and cash flow, as official records that offer in-depth insights into financial information.

Each of these financial KPIs is critical because it demonstrates a company’s overall “health” – at least when it comes to the minor issue of money. These KPI reports do not provide much insight into a company’s culture or management structure, yet they are critical to success.

As we go on, we’ll look at the applications of small business financial statements. But for now, it’s essential emphasizing that these “financial health reports” are critical for anybody seeking to make educated business choices. Financial reporting software and tools provide essential data on investments, credit extensions, and cash flow, among others. For tax reasons, financial reporting, balance sheet reports and analysis are also legally required.

Now that we’ve looked at what we believe to be the “financial reporting meaning” or “financial reporting definition,” let’s have a look at the advantages of various types of reports.

The advantages of financial reporting

To continue our exclusive read, let us examine the main advantages of accounting reports and analytics.

1. Trend analysis

Regardless of the financial activities, you want to monitor, balance sheet reports and other accounting reports can assist you in identifying patterns, both past and present. It allows you to address any possible weaknesses while making changes that will benefit the overall health of your company.

2. Progress and compliance

Progress and compliance

Because the information provided by financial reporting software is both accurate and robust, access to this level of analytical reporting not only provides the opportunity to improve your financial efficiency over time. But it also ensures you remain 100 percent compliant – which is critical if you want your business to remain active.

3. Access to communication and data

Any contemporary financial analysis report worth its salt is viewable and tailored for a wide range of devices. By obtaining unrestricted access to critical financial insights and data, you can react to problems quickly while also enhancing overall corporate communication. 

Your company will become more efficient, creative, and protected against possible compliance problems or mistakes if everyone knows developing patterns and can exchange critical financial data.

4. Improved debt management

As you are aware, debt can hinder the growth of any business, regardless of industry. While there are many various kinds of accounting reports based on purpose or software, nearly all solutions will assist you in tracking your current assets split by current liabilities on your balance sheet to help assess your liquidity and manage your obligations appropriately.

5. Real-time monitoring

Real-time monitoring

Gaining access to consolidated, real-time data will allow you to make correct, educated choices quickly, eliminating possible bottlenecks while preserving financial flexibility at all times.

6. Liabilities

Managing your liabilities is an essential element of maintaining your company’s financial health. Business loans, credit lines, credit cards, and vendor credit are all significant liabilities to handle. Whether you intend to apply for a company growth loan, you may examine small business financial statements and decide if you need to decrease current obligations before completing an official application by utilizing financial reporting software.

7. Cash flow

Whether large or small, an organization’s cash flow is critical to its long-term financial sustainability. Working with a combination of precise indicators and KPIs, you may dig down into cash flow about expected profit and obligations, keeping your monetary movements safe and fluid throughout the process.

Here are the fundamental financial reports for your business 

Even though financial reporting software will most likely provide various valid financial data, the ones you’ll be looking at the most are as follows.

1. Income and expense statements

This report is the most important of all company accounting reports. A profit and loss statement shows how much money your business made and spent during a specific period. It is often split into three sections: revenue, expenses, and net income or loss. If your revenue exceeds your expenditures, you have net income. If your expenses exceed your revenue, you have a net loss.

Income Tax Statements

Depending on your company’s requirements, the Profit & Loss report is often produced weekly, quarterly, and annually. However, you may want to look at a month-to-date or year-to-date Profit & Loss report to see where you are at any given point in time when utilizing online invoicing software.

If your results aren’t what you expected, you’ll have ample time to make changes before the end of the fiscal year. On your Profit and Loss Statement, look for the following red flags:

Sales are rising, but profits are falling – In most cases, earnings are rising in lockstep with sales. Something is wrong with your company if your sales are growing, but your profits are dropping. To find out what’s going on, look at both your direct and indirect costs.

Sales stagnation – The majority of companies desire to grow. In other words, if your sales stay constant from month to month, quarterly to quarterly, or year to year, you may need to rethink your products or marketing approach.

The sun is rising higher in the sky – If you ignore your overhead costs, they will increase over time without your awareness.

Reviewing a relatively small business financial statement allows you to look more closely at expenses like insurance, rent, salaries, and utilities and find areas where you may cut costs.

Furthermore, if you utilize financial reporting software to measure time and expenses, you will evaluate the effect on profitability. You may use small business financial statements reporting software to combine all necessary information on a single summary sheet, including line, bar, and pie charts.

Pull the Right Reports with Financial Reporting Software

2. Balance sheet

balance sheet reports are financial statements or business reports that indicate a company’s total assets, liabilities, and shareholder ownership at any moment in time for a certain period.

It provides an up-to-date view of a company’s financial position, including the economic resources it has, the sums it owes, and the sources of financing utilized to acquire those assets.

Balance sheet reports are often used with financial reporting software to identify trends and help business owners make informed financial decisions. This information is also essential for potential investors and bank lenders, who will use it to determine whether or not the risk of providing credit is worth incurring.

As the saying goes, “the numbers don’t lie,” and this is particularly true in financial analysis, where statistics are more essential than anything else. When a business contemplates a merger, it must evaluate asset disintegration to support debt and when an investor considers investing in the company. And, when a business analyses its financial position to decide if it is in a stable enough financial state to expand or begin repaying loans, balance sheets are essential to the decision-making processes.

3. Annual reports and expenses

A report on costs is a document that lists all of the expenses incurred by a business throughout its operations. A small-business owner may ask their employees to submit expense reports for business-related expenditures such as gasoline or meals.

Alternatively, a small business owner may use expense reports to monitor project costs and prepare for tax season. The main goals of such small business financial statements are to present you with a summary of your company’s achievements during the preceding year.

Assume the financial numbers are on your side. In that scenario, you may also use this kind of performance report as a marketing tool to get people excited about your company, particularly potential investors and customers.

The Securities and Exchange Commission (SEC) requires publicly traded businesses to register with the SEC every year.

Instead of feeling stressed, create company reports with Moon Invoice’s financial reporting software and sophisticated dashboards. They are densely packed with essential information, allowing you to see precisely what you need at a glance.

If you use time tracking software, you may also include time taken by workers or time spent per project in this yearly report. Another key incentive for small businesses to maintain track of their expenses is taxes. Many business expenses may be deducted from a company’s taxable income when taxes are filed.

4. Cash flow statement

This report reveals how much money went into and out of your company during a specific time. The cash flow statement is essential for ensuring that you have adequate money to pay your employees.

This financial statement combines information from the income statement and the balance sheet to show how cash flows into and out of a company. The “cash flow from operations” line is essential in any financial statement for a business owner. 

It displays the net difference between cash that came in and cash that went out on an operational level during the period specified. Looking at cash flow from operations regularly provides a clearer perspective on the company’s health, enabling owners to focus on enhancing outcomes.

5. Net profit margin over time

Owners can manage pricing, expenditures, and sales activities more effectively if they track net profit margins over time, such as many quarters or years. 

A profit margin is a measure of how much profit is produced for every dollar of sales, and it may vary from one season to the next and from one sector to another. Consequently, it is most helpful to compare a company’s margin to that of its industry peers or that of the company itself over some time.

Reports to Review Daily

Item Sales Report

Expense Report

Reports to Review Weekly

Cash Flow Report

P&L Report

Reports to Review Monthly

Balance Sheet

P&L Report

General Ledger

Reports to Review Quarterly

Item Sales Report

Revenue by Client Report

P&L Report

Balance Sheet

Reports at the time of Tax

P&L Report

Balance Sheet

General Ledger

Also Read: 7+ Business Reports Which Every Business Needs!

Bottom line

Operating these accounting reports will, at most, indicate that everything is running well in your company, much as a well-child visit to the doctor may confirm that a kid is on the proper development trajectory. In the worst-case scenario, when you automate the expense reporting process to produce the small business financial statements will enable you to detect significant problems before it’s too late to turn the company around.

Financial reporting software is essential in this situation. Because you cannot afford to save financial reports for your business manually or on an Excel spreadsheet, it will be detrimental to the company in the long run. If you would like to test Moon Invoice’s online invoicing software, please get in touch with us at support@mooninvoice.com or +1-805-491-9393.