Importance of Financial Statements and Keys to their Preparation

Financial reports or statements are the key to understand the reality of your business in a given period and contrast it with your goals and objectives so you can make informed decisions.

What are the keys to prepare a complete and useful financial statement for the management of your business? Read on!

1. Data collection: Keep a record with its due supports of all cash inflows and outflows, as well as accounts payable and receivable. Complete information is the first element to be able to classify each movement in the corresponding item, as well as to compare data from current and previous periods.
2. Relationship between net income and company assets: Assets represent your company's capacity to assume commitments, as well as its capital to operate. For this reason, you should always take into account the income and liabilities in relation to the company's assets and at the end of the period decide whether to use your profits to increase the company's assets, or on the contrary, in case of a negative result for the year, use the assets to cover the losses. Likewise, you should always take into account the depreciation of fixed assets, which allows you to reduce your tax burden but does not involve a cash outlay.
3. Establish a clear objective: Financial reports or statements work based on parameters and comparisons. Therefore, you must be clear about the norms and standards you will follow for their preparation, as well as the objectives and goals you are aiming for in the performance of your company or business. This will facilitate the projections and analysis of the information.
4. Have a reliable software: The best software is the one that is implemented according to the needs and regulations of your company. The use of technology will allow you to systematize the information and access it easily from anywhere or at any time.  In addition, it will allow you to efficiently comply with tax obligations (IRS) and have the information at the time of an audit.
5. Presentation of results: In closing, financial statements or reports should include key indicators that facilitate understanding and accompany conclusions that represent the reality of your business and its industry. This can be achieved using liquidity, indebtedness, efficiency and profitability.

If you would like to know more information, or would like the help of an expert to help you understand your financial statements or how to prepare them, do not hesitate to contact our team at Smartkeep.