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The value of financial statements

While many business owners may see financial reporting as a formality, the reality is that it often offers business owners valuable insights into their business.

Not only does it allow you to build your annual accounts for Companies House, but the three key documents that are used for financial reporting show you how money is entering and leaving your business, any debts you may owe and the assets you own.

This can be a great way to gauge the financial health of your company, including spotting any financial risks within your operations.

What are the three pillars of financial reporting?

There are three important financial statements that go into producing your annual financial report as a business, these are:

Balance Sheet – This gives you an overview of your finance and acts as a barometer of the overall financial health of a business at any given time.

Updated regularly, it should record your liabilities, assets and shareholder equity. As these factors change, your balance sheet should reflect them.

Balance sheets give your stakeholders and potential investors a clear vision of your financial health, allowing them to assess whether you have the funds or assets to meet your obligations.

Profit and Loss Statement – This statement helps to reveal trends in the revenue and expenditure of your business over a longer period of time than a cashflow statement.

Ultimately, it should show whether you are making a profit or loss. This can be essential in not only understanding how your business is performing, but also in calculating Corporation Tax and any related tax planning opportunities.

Cashflow Statement – Cashflow is the lifeblood of a company, and this statement shows how money is entering and leaving your business.

This statement is a great way to continually monitor your working capital, as it will clearly show your core financial activities.

This is a good short-term overview of your day-to-day operational costs, investments and finance.

If you need help with your financial reporting or would like to gain deeper insights from it, please contact our experienced accounting team at enquiries@stca.co.uk or 01494 552100 or your usual Seymour Taylor representative today for assistance.

This blog is for guidance only, professional advice should be obtained before acting on any information contained herein. The information was correct at the time of publishing 12 July 2022.