For every business to grow, it is very essential to track the numbers that the business is making after the ideation, execution, and operational stage. This not just makes things clear about the budgeting or the appraisals for the employees but it also provides clarity if the business is at the stage that it should raise funds or should stop producing a few products or work a better strategy for selling the service the business provides.

Of course, tracking so many financial details about the company might feel overwhelming and you might not be able to figure out where to start from. So, let’s make it a little simpler and begin with the basic financial statement that every business needs.

The four basic financial statements are the statement of cash flows, Balance sheet, income sheet, and statement of retained earnings.

1. Statement of cash flows

Of all the four financial statements, let us first discuss the Statement of cash flows. This is basically the financial statement that summarizes the total cash that is entering and leaving the accounts of the company.

This financial statement is comparatively simpler, and it basically helps you track the inflow and the outflow of the cash. These figures help you take some key financial decisions as to how much cash you have, to re-invest in the business with respect to the liquefied capital, and can be kept as emergency funds for certain times.

This statement also helps to determine your timing accuracy to perform operations like paying the employees, the suppliers, and the stability in these over months

2. Balance sheet

The balance sheet is the financial statement of the business that states and summarizes everything about the company’s liabilities, assets, investments, debts, reserves, and equity distribution among shareholders at the given point in time.

This statement very clearly shows the current financial situation of the company and if there are any debts that the company is liable to pay at any given point. This is an extremely efficient tool to perform budgeting and it provides legitimate data about the shareholdings among investors and co-founders.

This financial statement can help the company determine if they need more funds to perform the operations or they should plan on expansion if they are running in profits. The balance sheet is thus, the financial statement that helps the business stay on budget if it is used accurately.

3. Income sheet

An income sheet is a financial statement that summarizes whether the company is running in profit or loss during the given time period. It shows whether the revenue that is generated by the business is converted to net profit.  Because of this functionality, this statement is also alternatively called the profit and loss (P&L) statement of any company.

It also provides all the required data about the sales, overhead expenses, operating profit, operating profit margin percentage, and also the depreciation of the business if incurred. This income sheet is the best resource for any company to determine which aspect of the business is generating a good amount of revenue and which other is leading to either a decrease in the numbers or resulting in stagnancy in the company’s financial account.

This can help to assess and predict the annual turnover the company can make at any given point and can also help the investors to find out if their money is at risk or it will give them exponential returns in the coming years.

4. Statement of retained earnings

The statement of retained earnings is the one that highlights the changes in the equity over a certain time period. Retained earnings are basically the net income that the company has after paying to the other stockholders of the company for their shares.

This statement is mostly prepared and focused upon when the owner of the company wishes to raise funds through any of the fundraising methods.

After all this information, you might have ample amount of clarity as to what is required for your business to have a sorted financial aspect of the company.

However, if you feel it is too time consuming and might create a hurdle for your focus to grow the other aspects of the company then Team Kedden is here for your help. We provide bookkeeping and accounting services and help to set up, scale, and optimize your business. Book a Free 30 min consultation call with us and explore the scalability of business after you collaborate with us!