How to write a financial planning report

Financial reporting is an essential part of bookkeeping for your business. That is why it is important for business owners to understand what financial reports are, how to create them, and when to use them.

In the same way that you need to do your bookkeeping and compliance to maintain visibility over your financial performance, you should also work financial reporting into your regular business admin schedule. Creating financial statements is how you map profitability, cash flow, and business health.

Understanding financial statements

Financial reports, or financial statements, are financial records used to gauge the financial health of a company.

Most financial statements are drawn from the data stored in your accounting software. This data, properly mapped and presented, will give you immense oversight over your business operations and future trajectory.

There are three main types of financial statements or reports:

1. Balance sheets
2. Income statements
3. Cash flow statements.

Let’s break down the nature of these three important reports.

Balance sheets

A balance sheet is a financial statement that details three important metrics at a given point in time – liabilities, assets, and shareholder equity (if you don’t have shareholders, this simply means the business owners’ equity).

There’s a basic formula behind a balance sheet: assets = (liability + shareholder’s equity).

We look at the three primary components of a balance sheet:

1) Assets

Assets are things of value that a business holds. Assets can either be traded, sold for profit or used to generate valuable products and services. Assets can include cash, property, accounts receivable, equipment, or inventory.

2) Liabilities

Liabilities are your business’s debts or outgoing expenses. These liabilities may include rent, taxes, loans, accounts payable and payroll.

3) Shareholder equity

Shareholder equity refers to your business’s net worth. If you were to sell off all assets and settle all debts, shareholder equity would be the capital left over.

Income statement

An income statement, often called a profit and loss statement (P&L), is a report that details your business revenue, expenses, and profitability over a given time period. Your income statement will show your revenue from product or service sales and your expenses incurred in generating that revenue, which will illuminate your profitability.

Cash flow statement

A cash flow statement is a type of financial report which details the flow of cash (and cash equivalents) in and out of a business.

Your cash flow statement will shed light on your cash position, or how well you regularly generate cash to keep up with your operating expenses and debts. This is a crucial document for understanding how well you manage your cash, such as where it’s coming from and how it’s being spent. Since cash flow is a primary concern for small businesses, this is a highly useful report.

Put your accounting software to use

The easiest way to do reporting or create financial statements is to use your accounting software. In fact, this is one of its primary functions.

Any accounting software worth its salt should be able to generate income statements, balance sheets, and cash flow statements from the data you’ve stored in your solution through regular bookkeeping.

(To make sure you generate accurate reports, you need to be vigilant in thoroughly and accurately recording financial and sales data in the first place.)

What’s the purpose of financial reporting?

Without financial reporting through the creation of a financial statement, trying to assess your financial position, including history and future trajectory, would be futile. By creating P&L statements, balance sheets and income statements, you can lay bare your financial health and use these insights to make better decisions.

The insights will not only help you see your net income (or where you can make cuts to overheads or improve profitability and cash flow), they’ll also assist with budgeting and forecasting.

Such financial reports or statements are also instrumental in securing loans, courting investors, or selling your business. In a way, financial reports are somewhat like educational grades and test results – they tell you where you need improvement and also what’s working well. Neglect financial reporting at your peril!

Limitations of a financial report

Despite being a small business necessity, financial statements do have limitations. These statements may differ and be read differently to separate people. Some people may look at cash flow results favourably, while others may see them as in dire need of improvement.

If they don’t include a significant list of other business priorities or metrics, financial reports don’t always paint the full picture of how your business is performing. They won’t tell you about staff performance or culture, nor will they tell you about customer service or product quality. They may give hints about sales and marketing performance, but they certainly won’t tell you the whole story. Then there’s the broad and undetailed nature of financial reports in general… they don’t often drill down into accounts receivable for example, or take into account your best days for sales.

How can I stay on top of my business finances?

The easiest way to keep on top of your business’s finances is to embrace cloud-based accounting software – ideally from the day you start up.

Regardless of your financial reporting aspirations, accounting software is essential. It’s Integral to bookkeeping, taxation, payroll, and GST.

The upside to storing all this key financial data in your accounting software, of course, is that you can report on your financial performance with relative ease. Just be sure that you’re diligent and comprehensive when it comes to recording transactions and related data, or you won’t have accurate financial reports.

Hot tip: create a monthly or daily financial report to spot imminent issues and ensure regularity behind your reporting.

Lastly, you’ll always benefit greatly from the sage advice of a business advisor. The reports and statements you’ve generated will be invaluable in your discussions.

Enlisting a professional accountant or business advisor to create assurance around your reporting and financial decision-making is one of the best things you can do as a business owner. Not only are they adept at compliance, they’re also excellent at solving cash flow issues, reducing overheads, tweaking your business model, and advising on the use of accounting software.

How to use accounting software to help with your tax preparation?

Good quality accounting software is becoming indispensable in preparing income tax returns for businesses.

Accounting software can easily help you create income statements and expense records. It is thus highly recommended that you use accounting software to help prepare data and reports for your tax lodgment.

Accounting software is also useful for storing records, such as receipts, that are required to be held as proof of business expenses.