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8 Important Financial Reports Every New Business Owners Should Be Looking

Biplob Dev — Mon, 23 Aug 2021 05:37:37 +0000

As a small businessman, you already might be keeping track of the company's general fiscal health.

However many business owners are overwhelmed by bookkeeping and choose to avoid it. Therefore they remain unaware of the value and insight into financial reports that are beneficial for the health of a business.

Your financial reports act as essential Key Performance Indicators. These key performance indicators (KPIs) are your tools for monitoring and tracking success in key areas of business performance.

Your accounting reports also give you an overall picture of how well your company is doing. Using the insights provided by your financial reports, you may be proactive in making important changes in areas that are underperforming, avoiding potentially severe losses.

You may choose to outsource or hire an accounting team for all your accounting tasks, but as a business owner, it is necessary you are well-equipped with basic accounting knowledge. This would make the decision-making process efficient.

8 Reports that Every New Business Owner Should Look into

These reports serve as fundamental elements in assisting you as a business owner in obtaining a comprehensive view of your company's books of accounts in sync with your business operations.

1. Cash Flow Statement

What is any business's eventual aim? Isn't it important to have consistent cash flow? So, where can you get these essential cash flow management insights in order to stay on top of your company's finances?

A cash flow statement is a financial statement that shows the income that has been received and expenses that have been paid.

Your cash flow statement presents all of your company's incoming and outgoing transactions over time; right from how you spend money to how you gain it.

The cash flow statement examines your company's net income and accounts for any non-cash transactions from operations, investing, or financing activities to demonstrate to you precisely what happened to the company's cash during that time period.

Three categories of activity are shown on a cash flow statement:

Operations: Accounts receivable, accounts payable, and inventory are just a few of the business tasks you'll need to run your company.

Investing: This entails making long-term modifications to equipment, purchasing or selling assets, and so on.

Financing: This entails taking on debts, repaying loans, and other activities that do not affect your bottom line, but do affect the quantity of money in your bank account!

A cash flow forecast's key advantage is that it allows you to comprehend the impact of future and prospective outcomes, plan for upcoming cash shortfalls, track if the expenditure is on track, and accurately handle surplus cash.

2. Accounts Payable

If a business took too long to pay you, you probably wouldn't appreciate it. Do yourself a favor and pay your vendors on time as well.

Accounts Payable is the term used when a business acquires products on credit that must be paid back within a short period of time. It's classified as a liability and falls under the category of "current liabilities." Accounts Payable is a type of short-term debt that must be paid in order to avoid default.

Your Accounts Payable report will tell you who you owe money to and how much you owe them. You may quickly search up who you need to pay so you don't miss the deadlines if your books are up to date.

Late payments can create conflict and result in late fees and other expenses. Simply pay on time. Some suppliers may even offer you a discount if you pay early.

3. Accounts Receivable

You simply don't work for anything, and your company isn't a non-profit. Part of the struggle is completing the work and mailing the invoice. You must also ensure that such payments are made and collected.

The proceeds or money that the company will receive from its clients who have purchased goods and services on credit is referred to as Accounts Receivable (AR). The credit period is usually brief, ranging from a few days to months or even a year in rare situations.

On the balance sheet, account receivables (AR) are classified as current assets.

The accounts receivable report (A/R) tells you how well you're doing in terms of collections. Keep an eye out for customers who are always late, who used to pay on time but have suddenly started paying late, and who have growing late sums.

4. Profit & Loss statement

The profit and loss (P&L) statement (also known as an income statement) displays your revenue, costs, and expenses over a specific time period. Because the P&L provides the finest perspective of your bottom line or net income, it's commonly used to illustrate business lenders and investors if your firm has made or lost money over time.

Your company's net income will also be used to calculate its taxable income each year. This is computed by subtracting your company's expenses from its total revenue, which can be found in your profit and loss statement.

It's crucial to keep in mind that your income statement reflects sales and expense activities across time, whilst your balance sheet shows your financial situation at a certain point in time.

5. Balance Sheet

A balance sheet shows you what a company owns and owes at any particular point in time. Bank accounts, accounts receivables, and maybe an investment account are examples of assets for small and medium enterprises.

A balance sheet may also include assets such as real estate, computers, equipment, and other tangible and intangible assets that can be sold. Credit cards, business loans, and anything else your company owes are examples of liabilities.

The balance sheet is a two-sided sheet that has three parts (Assets on one side and Liabilities and Equity on the other)

Remember that the left side will always equal the right side as you construct your balance sheet. You have made a mistake if they are not equal. It's as easy as that.

The balance sheet serves as the foundation for the accounting equation. It states that Assets minus Liabilities equals Equity. The gap between what you own and what you owe should ideally be positive and grow over time.

Look at the short-term assets vs short-term liabilities when looking at the balance sheet. You don't want to run out of cash without realizing your assets are illiquid if you have payments due shortly.

6. Stock Report

Stock, also known as inventory, is one of the most important aspects of many businesses.

Inventory moves in and out of your manufacturing and warehousing facilities on a regular basis. It can be difficult to visualize how much turnover is truly occurring. The inventory report informs you how much of your average inventory has been sold in a given time period.

It is critical to keep track of stock movement and shelf life in order to avoid losses due to stale stock.

Tracking and keeping a close eye on the old stock has numerous advantages for a company. Stock reports help business owners make rapid, rational decisions that have a direct impact on their business's growth and profitability.

Which product has the highest profit margin? How quickly do products sell? Which products are the most profitable? Your stock-item profitability report can provide answers to such questions.

Investing in online accounting software that helps in keeping track of inventory and generating reports regarding the same is beneficial.

7. Customers by Revenue

You should look at who owes you money and who gives you the most of it. Your revenue by customer report shows how much money you made from each customer over time. In many industries, freelancers and professional service businesses rely heavily on repeat business. Developing positive relationships with high-quality clients can result in a lucrative, consistent, and healthy cash flow.

However, don't put too much faith in any one source of income. The term "revenue concentration risk" refers to when too much revenue comes from a single source. If losing just one client would ruin your entire business, you need to diversify your clientele.

8. GST/VAT Taxation Report

So, aside from keeping your books in alignment with your business, what is the next most essential element to consider? GST! Yes, GST compliance is amongst the most important aspects of a business, and accurately recording business transactions in accordance with tax laws is critical to staying true to your company.

For Example, take the scenario of India, since 2021, GST-compliant accounting has gained momentum. All Indian businesses are required to formulate GST-integrated invoices.

GST accounting also provides the company with a competitive advantage over its competitors.

However, a handy GST Software plays a major role in taking advantage of all these reports.

Some of the advantages of utilizing GST-compliant software are listed below.

Create invoices that are GST-compliant.
Last-minute filing can be skipped because the software will assist you in filing your returns accurately and on time.
Drawing comparisons and reconciling your accounts with the GST site would no longer be a time-consuming process. T
The reports will be error-free since the applicable taxes for specific commodities will be done easily because the return filing procedure is done through software.
Receive the correct input tax credit for your transactions.

Conclusion:

There are a lot of other financial reports to take into notice but these are basic accounting reports that every new business owner should be knowing.

A GST accounting software is equipped with accounting, payroll, and inventory modules. And it generates these reports quickly without any room for errors.

Therefore a solid accounting system should be at the palm of your hand to get instant access to these reports.

There are many online accounting software and apps available for maintaining your books of accounts.

So you should have one of them to manage your books and get instant access to them anytime and anywhere.

Here is a list of the best accounting software for your reference that might help

https://dclouds.in/best-accounting-software-india/

How to Analyze the Receivables and Payables Reports in an Accounting System?

Biplob Dev — Sun, 13 Jun 2021 11:09:48 +0000

Are you a small and midsized business unable to afford a senior CFO? Do you feel handicapped at not being able to manage your finances due to a lack of proper reporting? And is your accountant not maintaining your books of accounts properly?

A lot of small businesses feel intimidated to implement an accounting system. Therefore they really struggle to analyze and manage their accounts and finances. But getting a grip on your finances is vitally important and potentially the only way to survive!

In this article, I have looked at ways to review your books of accounts to enable you to get a better grip on your business.

But again before I get into this, one strong recommendation is to make sure you at least have an accounting software or subscription to online accounting to analyze your data.

Being offline is honestly a no-go in today’s times and will make you severely handicapped.

Everything has moved online, branches to net banking, physical meetings to Zoom and Google Meet, letters to emails, and physical filing of returns to online IT returns.

So there is honestly no logical reason for accounting to be offline. While there are a lot of accounting systems in the marketplace, I would also advise you to look for scalable accounting software online so you can grow as your business grows.

Because that is how you can deep dive into your business to analyze your accounting reports anytime and anywhere.

Analyzing the Receivables and Payables Report in an accounting software

I have seen countless businesses not maintaining bill-wise details and therefore have no clue about the aging of their receivables.

And this one single activity wherein you track all your receivables can really transform your business, and control cash flows to ensure all invoices and receipts are marked properly.

Having said that, I would also like to share something with you that I have personally experienced.

Recently I came across a large manufacturing concern with whom we were discussing the implementation of online accounting systems.

They supply some of the largest retailers and corporates in the country such as Dmart, Reliance, Spencers, Infosys, Wipro, etc.

And the manufacturer supplies to these companies on a pan-India basis but they do not have any system in place to know at one go what are their total sales or receivables from various customers.

Additionally, even within the same branch, since every single person has the power to open a customer ledger, the same customer’s ledger has been opened multiple times and is being used to record sales and receivables on an ongoing basis.

Wherein they maintain their entire MIS reports (plain and simple accounting) on a parallel Excel which they use to control their business.

Visualizing this I cannot emphasize how poorly this reflects the financial data management since the company is not even in a position to send a customer balance confirmation or reconcile the books on a regular basis.

In the same way, recording your payables is equally important since you need to know what your current liabilities are, you need to ensure that TDS is deducted properly and GST inputs are claimed.

Not recording payable also can lead to the expense being disallowed if TDS is not booked and the GST input not being claimed which is a further loss to your company.

A lot of companies just record the payment entries especially small organizations where the owner initiates the payments without bothering to check if the expense has been booked or not, and therefore it becomes a mad scramble during the time of the audit to look for these bills.

So a better solution is to shift to an accounting system online, attach all your supporting documents to the respective entries, and ensure that the person initiating the payment ensures that he checks the ledger balance on the app before initiating any vendor payment.

This small discipline shall go a long way in ensuring accurate representation in accounts and also give you a clear picture of your payables along with due dates.

Recording Customer Invoice to ensure Timely Collection

When you create the customer master, ensure you feed their GST details, PAN No, Address, and most importantly the credit period you are extending the customer from the invoice date.

Ensure bill-wise tracking is switched on – without this you cannot get an aging report.

While recording the invoice, make sure you are preparing the invoice promptly on the actual date with no delays so that the due date is calculated on the basis of the invoice date.

Some customers also calculate on the basis of the delivery date (in the case of goods) if your software allows this, then that is an added bonus as it will allow you to record the delivery date and generate bill-wise outstanding basis that date.

While analyzing your receivable report, track invoices that are overdue first.

Ensure your accounting software has the facility to send an automated reminder to the customers informing them that bills are overdue and they need to be cleared at the earliest.

Next, send a reminder to all customers who are due to pay in the next 3 days. This serves as a timely reminder to them to ensure that they pay on the due date.

It is the kind of system that mobile phone companies or electricity providers do i.e. a timely reminder to ensure that the client pays.

If the reminder can contain a payment link, then that is an added advantage. Additionally, keep monitoring your aging report, and create relevant buckets, most people like to use 0-30 days, 30-60 days, 60-90 days, and greater than 90 days buckets, but depending on your business, this can be modified.

Your online accounting software must have the feature to customize this. It is quite a basic feature!

Recording Vendor Invoices to ensure Timely Payment

While creating a new Vendor, just like in the case of the Customer, ensure all details – PAN No, GSTIN, and Address are captured now along with the credit period you enjoy for payment of that invoice.

Always ensure bill-wise tracking is switched on. Without this, you cannot understand the aging of your payables. Do not accept invoices that do not have the vendor’s PAN no. / GSTIN mentioned in case he is registered.

Prior to recording the invoice, please check that your company name and GST No. are accurately mentioned. Both of these are extremely important for claiming GST Input and Audit purposes.

When recording the expense, ensure the correct selection of expense head and treatment of TDS and GST is done. Recording the vendor invoice no. is important for reconciling GST returns and vendor ledgers in the future.

Keep track of upcoming payments by checking the due bills report which should show you all due bills in the next 7 days / 14 days etc. as well as any bills that are overdue.

Following these simple processes will go a long way in keeping your books of accounts in proper shape and allow you to get far better control and grip over your business. Shift to a better online accounting software today it is more than worth it!

Conclusion:

As you have seen here we have examined a simple recording and analysis of your receivable and payable reports. This is the most critical report for any business as it helps a business plan and analyze its cash flows.

But often it is seen as one of the much-neglected reports and most people do not maintain this properly. So keep your accounting system configured the right way to ensure timely payments and receipts.

A combination of your receivables and payables ensures that you can keep track of your cashflows and forecast them properly.
Therefore I would highly recommend you shift your accounting activities online and remove the dependency of getting this information from your accountant.

Being online will also ensure that your accountant knows you have access to the books of accounts and therefore he will ensure that the books are up-to-date.

Thus moving your accounting system online is a definite plus and an added advantage for all micro, small, and medium enterprises to take potential advantage of your business in real-time.