Financial Reporting for Small Businesses: Reports, Timing and Use

The three core reports

The income statement shows profit over a period, the balance sheet shows what you own and owe on one date, and the cash flow statement shows where cash came from and went.

Each report answers a different question:

• Income statement (profit and loss). Revenue minus costs and expenses for a month, quarter or year. Learn the format in the income statement guide.
• Balance sheet. Assets, liabilities and owner's equity at a point in time. See understanding the balance sheet.
• Cash flow statement. Cash from operations, investing and financing. See what goes on a cash flow statement.

They connect. Net profit from the income statement flows into equity on the balance sheet, and cash on the balance sheet should match the ending cash on the cash flow statement.

Cash basis or accrual changes the numbers

Cash basis records income and expenses when money moves. Accrual records them when earned or incurred. Your method decides how your reports look.

A contractor who finishes a $20,000 job in March and gets paid in May shows the revenue in March under accrual and in May under cash. Both are valid for many small businesses, but they tell different stories about a given month.

Ask your accountant which method you are required or allowed to use for taxes, and use the same method consistently in your reports. Read more in cash basis versus accrual accounting. Lenders reviewing financials will want to know which method you use.

Build a monthly reporting routine

A short monthly close, done in the same order each time, keeps reports accurate and saves a scramble at tax time.

A practical checklist for each month:

1. Record all sales, bills and payments, and categorize them.
2. Reconcile bank and credit card accounts to the statements. See bank reconciliation.
3. Review open invoices and bills for errors or missing items.
4. Run the income statement, balance sheet and cash flow reports.
5. Compare with last month and the same month last year, and note big changes.
6. Save the reports as PDFs in a dated folder.

Many owners do this by the tenth day of the next month. The routine is described in how to close the books.

Read the reports for decisions

Look for trends in margins, receivables, debt payments and cash. A report is useful when it changes what you do next.

Ask a few direct questions each month:

• Is gross margin steady, rising or falling?
• Are expenses growing faster than revenue?
• How long are customers taking to pay?
• Do I have enough cash to cover the next two months of fixed costs?
• Are debt payments a manageable share of revenue?

Useful ratios include profit margin and the current ratio, which compares what you own that turns to cash soon with what you owe soon. Compare your figures with prior periods first. Industry comparisons are helpful too, but only from sources you trust.

Who needs your reports and when

Your tax preparer, lender, landlord, investors and partners may all ask for financial reports, usually yearly or on request.

Keep a standard package ready:

• Last two to three years of income statements and balance sheets.
• Year-to-date reports for the current year.
• Business tax returns.
• Recent bank statements.

Having this package current speeds up any financing request. See also documents needed for small business financing. Reports that are late, inconsistent or missing months raise questions that slow decisions.

Common reporting mistakes

The usual problems are mixing personal and business spending, miscategorized transactions, unreconciled accounts and skipped months.

Watch for these:

• Mixed accounts. Use a separate business account and card. Our guide on separating business and personal finances explains how.
• Catch-all categories. Large "miscellaneous" balances hide what you spend.
• Loan principal booked as expense. Principal reduces a liability. Only interest is an expense.
• Owner draws booked as wages. Record them consistently and as your accountant advises.
• Skipping months. Catching up six months of records is slower and less accurate.

If your books are behind, consider hiring bookkeeping help before the next tax or loan deadline.

How reports support a funding request

Clean reports and bank statements show revenue stability and help match you to the right product, quickly.

ROI Funder considers 500+ FICO, 6+ months in business and $20,000+ monthly revenue. A complete file is the application plus three months of business bank statements, and approved complete files can see money the same business day. Your financial reports help you decide how much to ask for and what payments you can carry.

Before applying, work out what the money will produce and how fast. Use the total cost of a funding offer guide to compare offers. ROI Funder shows the true cost, payback period and monthly-equivalent payments before you sign, and the application uses a soft credit pull. Start at apply when you are ready.