Understanding the financial health of one’s company is one of the most important skills for entrepreneurs, aspiring investors, and managers. This knowledge is essential for finding better financial opportunities and eliminating undue risks while improving strategic decision making for the business. Financial statements come in extremely handy when talking about getting a bird’s eye view of your company’s financial health.
Financial statements provide a clear cut window into your company’s financial health. To add to that, these UK financial statements or bookkeeping are created automatically by your UK bookkeeping software to keep you up-to-date with your finances without any hassles. Without UK bookkeeping software, it may get extremely difficult to manually create, manage, and track financial statements. However, your UK bookkeeping software can only help you with all the important reports at the right time. The onus will still be on you to completely understand these reports in a way that is fruitful for your business.
What are monthly financial reports?
Monthly reporting gives business owners a holistic view of their business’ financial health. However, it is important for entrepreneurs and business owners to be able to analyse these reports to get more insightful details, and make informed decisions. Here are three of the most important UK financial reports that your UK bookkeeping software provides you with – along with how to analyse these reports in an effective manner.
Balance sheet
Balance sheets are financial statements that tell all important details about a business’ total assets, liabilities, and stockholder equities. In essence, balance sheets provide a complete view of a business’ financial position including the owes, economic resources owned, and more.
Balance sheets can be properly analysed to find patterns and trends required for making better financial decisions. Balance sheets are also useful for potential bank lenders etc., for using it to determine if the lending risk is worth it.
Income statement
The income statement is also known as the P/L or Profit and Loss statement as per UK financial statements. This document summarises the total revenues and expenses incurred by a business and indicates the net profitability during a set period of time.
Income statements can be used by both internal and external stakeholders for a proper evaluation of the company’s profitability. This also helps in assessing the level of risk that the investor is taking. For a company to be viable and financially thriving, the total revenues must exceed the overall expenses.
Cash flow statement
Cash flow statements contain the summaries of all cash inflows as well as outflows for a business over a period of time. This financial statement differs from income statements since it takes into account only cash activities and does not consider non-cash activities. Non-cash activities that are not included in cash flow statements include purchases or sales on credit.
Cash flow statements come with three broad sections – one related to operating, one to financing, and the other to investing. The statement helps in identifying which business areas are generating the most amount of cash. The cash flow statements can be best used to estimate and predict future cash flows – and perform budgeting and financial planning in a way to maximise the results.
In conclusion, a standard financial statement package consists of a balance sheet, an income statement, and the cash flow statement. These reports are automatically generated through a bookkeeping software and need to be studied and analysed on a regular basis to find useful insights. All in all, analysing financial statements provides a business with all important information about operations, financial position, cash flows, and so much more. This information can then be used to push the company finances in the right direction. If you are looking for a UK bookkeeping software for your purpose, click here for the best UK bookkeeping software.
