Key Business Financial Documents

Paperwork isn’t the most glamorous part of running a business, but it is essential to your company’s success. Financial documents are key in day-to-day operations as well as for long-term growth. The Cumberland Area Economic Development Corporation (CAEDC) works with numerous business financing and grant programs, but many small business owners aren’t sure how to respond when asked for specific reports to support their funding application. Here are some of the primary financial documents with which you should be familiar.

Income Statement

Your income statement is one of the most important documents your business has. Also known as a profit and loss (P&L) statement, this document summarizes your company’s expenses and revenue.  Income statements indicate your profitability and sustainability over time.

This statement provides a complete picture of your business’s current condition and your future prospects for growth. Potential investors and lenders use this information to analyze the value of your company. When you have a clear picture of your financial health with an income statement, you can more readily identify strengths and potential weaknesses.

Balance Sheet

While an income statement provides a broad look at your business over time, a balance sheet gives you a snapshot of your company’s current financial health. Balance sheets tell you what you own and what you owe. As a business owner, you have assets, liabilities and sources of equity. A balance sheet helps you visualize and manage those numbers to ensure your business remains solvent. You can account for both short- and long-term assets and liabilities, from quick-turnaround inventory to significant business loans.

Balance sheets allow you to track business growth over specific periods. These are useful documents for investors to examine your company’s assets, liabilities and whether your company can remain sustainable.

Cash Flow Statements

Cash flow statements track the inflow and outflow of cash at your business, showing how you use your money. Cash flow problems are a common issue for many small businesses, which is why it’s critical to stay on top of your financial documents. These statements allow you to see where you’re generating the most cash and where you’re spending the most. Classifications of cash flow correspond to specific business activities:  operating, investing, and financing.  This information is beneficial for calculating upcoming budgets and identifying possible areas of improvement. Cash flow statements also allow you to forecast operations in the future.

Budget Reports

While other documents typically provide information about your company’s financial history, budget reports are all about the future. These projections use past and current data to forecast your company’s financial trajectory. Budget reports tell investors about your short- and long-term plans. When proposed stakeholders or lenders can clearly visualize your business’s future, they’ll feel more confident in your potential. Budget reports are your opportunity to show lenders how a loan will produce better outcomes for everyone.

Tax Returns

While most people are probably familiar with individual tax returns, business owners should know that tax returns are an essential indicator of your company’s strength and value to investors. Business tax returns provide potential lenders with valuable information about your net profits and losses, gross sales and overall financial health. This info allows them to determine the risks and benefits associated with your company. Your tax returns also help you develop and optimize growth strategies.

Methods of Tracking Data and Preparing Reports

While large businesses have staff to handle their books, small business owners often wear many hats including that of administrative and financial manager.  Today there are a number of high-quality off-the-shelf accounting software packages that you can purchase to track your daily activity and generate these reports.  Although training is highly recommended to understand the theory behind the numbers, it is also possible to enter your own data and then have an accounting professional review it for accuracy to generate your reports.  The engagement of professional bookkeeping or CPA services is also a wise investment.

Business Loans in Cumberland County

Contact CAEDC online or call us at (717) 240-7180 today to learn more about key business financial documents and our available programs.