December 31, 2021
Financial documents guide your company's future

More than paper shuffling, year-end document gathering creates a game plan for your business.

Rebecca Hansen/Unsplash

Gathering your company's key financial documents while heading into a New Year helps guide your business in the year ahead.

Your small business' balance sheet report, income statement report and cash flow statement reports show if you are running a strong company or are in a weak financial position. These documents - which your accountant can assemble for you - help show where adjustments are needed in 2022. These adjustments may involve more marketing to spur more sales or cutting costs to reduce expenses, for example.

Here are the main three documents needed at year's end, and what they entail:

- The balance sheet report, with company assets, liabilities and equity;

- The income statement report, detailing revenue, expenses and profit;

- The cash-flow statement report, which shows opening and closing cash in a specific time period.

Breaking it down ...

Balance sheet

The balance sheet shows you, the business owner, if you're in the black or the red. it compares what your company owns to what it owes, basically. Things it owns might included property or trademarks. Things it owes might include pension plans and invoices. It should balance.

Income statement

This shows if your business is making more than it's spending. Also known as a profit-and-loss, or P and L statement, your company's income statement goes beyond a balance sheet and also looks at business expenses and earnings over a period of time. This could be the entire year, or three months, for example. Net income is figured by taking revenue and gains from that period and subtracting expenses and losses.

Cash flow statement

Your company's cash flow statement shows how much cash you had and where it flowed - from operations (money you earned or lost), from investments (assets bought or sold, or stock), and from financial decisions you made for your company, such as loans and their repayment.

Look at the cash you had at the end of this period compared to the beginning. Did you make or lose money?

Your accountant should be able to calculate the following figures based on these documents: your company's current ratio, debt ratio and gross profit margin.

As a small business owner, you need to arm yourself with information. But looking at these figures only at year's end isn't enough. Make it a point to view these documents and these numbers every quarter or - better yet - every month. That way, you can pivot immediately if things are in the red.

Kari Kerby

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