Level up your financial reporting for business success

Running a successful business is kind of like driving a car. You need to keep an eye on the dashboard to know how fast you're going, how much gas or charge you have left and whether an engine light pops on.

Financial reporting is your business dashboard — it tracks your speed (revenue), fuel level (cash flow) and engine health (profitability). Without monitoring your dashboard, your business could run out of gas before you get where you want to go.

What is financial reporting?

Financial reporting simply means recording and tracking all the money coming in and going out of your business. You do this by creating business financial statements for all the different pieces of your financial reporting puzzle — revenues, expenses, assets, debt and profit over time.

Reporting gives you a detailed look at how your business is doing. It's about understanding the numbers, with the goal of seeing where things stand financially so you can make more informed decisions.

Why does financial reporting matter?

Financial reports might seem like just one more tedious task every business owner has to do. But staying on top of your numbers really pays off by helping you to:

• Monitor performance: Regular reports tracking things like revenue, costs and profit margins allow you to monitor business performance at a glance and know what you need to do right now.
• Build employee trust: Sharing a high-level overview of company achievements — like a record-setting quarter — with employees keeps them informed and helps build their trust in the stability and integrity of your business.
• Attract investors: Investors want to see a detailed financial history and solid projections before they commit any funds. Robust reporting gives them confidence that your business is sound and you know what you're doing.
• Ensure compliance: Accurate recordkeeping shows auditors and regulators from places like the Internal Revenue Service (IRS) that your finances are by the book, and detailed reports can help you avoid potential legal issues down the road.
• Inform your decisions: An accurate financial history gives you a baseline for data-driven decisions about pricing, spending, growth and more.
• Maintain business health: Financial reporting is an excellent way to check up on the health of your business. Documents like income statements, cash flow statements, balance sheets and ratio analyses are the vital signs, and regular checkups keep your finger on the pulse.
• Know your value: Detailed records allow business owners and prospective buyers to value a company based on cashflow and discretionary earnings. You can leverage your records to justify what your business is truly worth and predict future value based on current growth.

Your top four financial reports

Financial reporting can include a lot of statements about every part of your business, but here are the top four reports every business owner should know like the back of their hand:

• Income statement: Sometimes called a profit and loss statement or P&L, the income statement lists all the revenue brought in and expenses paid out over a period of time and shows whether your business made or lost money during that time. Because income statements are typically done monthly, quarterly and annually, they can give you a clear picture of financial trends in the business. In turn, that can help you catch potential problems early on and identify new opportunities to grow the company.
• Balance sheet: A balance sheet is like a financial snapshot of your business on a given date. It lists everything the business owns as assets, everything it owes as liabilities and the difference as equity. The balance between those three numbers (assets = liabilities + equity) lets you gauge the health of the company. Growing? Struggling? Rock steady? The balance sheet tells the story.
• Statement of changes in equity: Retained earnings are the running total of profits kept in the business instead of paid out to owners, and this statement shows how those retained earnings change over time. Starting with the beginning balance, the report tracks where profits go and how retained earnings change, adjusting for profit/loss and payouts during the reporting period.
• Cash flow statement: A cash flow statement outlines how much cash is flowing in and out of your business from operations, investment activities and financing. Monitoring cash flow shows you which parts of your business are bringing in the most cash and which parts are using it up the fastest. This gives you a clear picture of cash needs and helps you plan your upcoming financial decisions accordingly.

Get the most out of your financial reporting

Now that you know the four big reports, here are some tips to make financial reporting work for your business:

• Automate with accounting software. Popular choices like QuickBooks and FreshBooks can save you a ton of time and manual number crunching.
• Establish a regular reporting schedule — monthly, quarterly and yearly — and stick to it; consistency is the key.
• Work with an accountant or financial advisor, at least at first, to ensure you stay accurate and set things up right.
• Review reports often to catch issues early and use the data to make adjustments to your business as needed.
• Share reports with important partners like bankers and investors. Your transparency with them builds their trust in you.
• Compare your year-over-year reports to identify positive or negative financial trends.
• Follow GAAP standards to feel confident in your reports. GAAP stands for generally accepted accounting principles for a reason — they are the gold standard for financial reporting.

The bottom line

By tracking your finances, you can ensure that your business is running smoothly. Wondering what else you can do to achieve your business goals? Connect with a Chase business banker to talk more about your options.