Financial Reporting is Good Business Marketing
In a recent blog in the Small Business Administration's website, Paul Lester writes that there are three essential financial statements. While an entrepreneur might only be interested in reporting available invested funds by providing a bank statement, a lender wants to be able to assess whether or not the borrower is equipped to run a successful business and that entails presenting your business in the language of financial accounting. The SBA.gov's website also provides more information on the 'what' and 'how' about financial statements. Follow these links for more information:
But have you ever wondered about the importance of formal accounting reporting? These are some reasons to keep in mind when designing and/or deciding on implementing your accounting information system:
First, loan officers use the same criteria for evaluating the business viability across different entities. Before they can do that, they have to create the financial reports using common standards, then apply liquidity ratios. If the same reporting standards aren't applied across entities it will yield different, erroneous, ratio results that are derived from incomplete or inaccurate information.
Second, there are more than one way to evaluate a company. A company can be evaluated by its performance or by it's assets. Typically, if a company is in it's growth stage, performance as measured by profit, can start to decline, yet the company has invested in a large sum of assets.
Third, if a company will be evaluated by its assets, how much of those assets were financed?
As you can see, there are at least three separate reports that have to be presented to capture these three pieces of information: the Balance Sheet, the Income Statement, and the Statement of Cash Flow. For further assistance with this subject, please feel free to contact me. My expertise includes preparing Financial Statements and recommending accounting information systems. Here, your target market are lenders and investors.