The accounting profession provides an excellent framework from which business owners can work from in tracking the financial progress of their business. This framework provides “slots” for where certain financial information and transactions should go. And once that information is put in those “slots” the natural flow of accounting reports allow valuable information about the financial condition of the business to come out, thus providing very valuable insight for business owners.
The basic Accounting reports that the profession provides and proves valuable to business owners are:
The Income Statement
The Balance Sheet and
The Statement of Cash Flow
Each one of these reports monitors a different financial aspect of the business but collectively they give valuable insight into how the business is moving forward. Business owners can use the reports to better determine how to use their financial resources. They can use it to see where there is leakage in the financial resources of the business.
For brand new business owners, while it may be difficult at first to put together on a consistent basis, these reports are tremendously helpful, because early on it may be tough for new owners to gauge how the business is doing without the reports. Owners may go on “gut” or simply monitor how much is in the bank account. While helpful to a certain degree, the monthly bank account statements do not necessarily provide in-depth insight into the business.
With real time accounting, owners can see how their business is progressing and gain confidence in knowing that over a particular quarter they have had a gradually increase in revenue. They can gauge when the sales for the business are strongest and weakest. They can see when expenses occur most frequently. And ultimately they can determine if the business is worth continuing or if it needs to be readjusted.
Financial reporting also helps business owners determine where to put necessary dollars toward marketing the business. By tracking what particular items or business lines sell more than others, owners can allocate appropriately. Ultimately, business owners will want to know how they are reaching their clients from a marketing perspective. Matching dollars spent, to dollars brought in through variously identified marketing efforts, will let the entrepreneur know how to proceed in the future.
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