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Understanding the Importance of Current Small Business Financial Statements

Business owners have a lot of challenges to deal with. There are numerous financial decisions which must be made on a regular basis, including:

  • How much capital is needed to invest in new talent
  • Capital needs to maintain payroll and other monthly obligations
  • Maintenance and upkeep of equipment and inventory

Since all these issues depend on the ability of the company to have cash on hand for necessary expenses, current financial statements are of the utmost importance. Let’s look at some of the ways that maintaining a current set of financial records can have a significant impact on your company.

African american business owner updating financial statements

Maintaining Current Annual Personal Financial Statements

We often get so engrossed in the day-to-day operations of our business, we lose sight of our personal financial statements. However, if you have a need to apply for a business loan or a business line of credit, chances are you will have to produce a personal financial statement.

In nearly all cases, any partner in a business will be asked to include a personal financial statement in conjunction with a business loan application. Making sure that you are maintaining your statements regularly can help prevent delays in the application and approval process. Having all this information in one location can be of real help. You can download the document below that calculates your net worth.

Baker Boyer Personal Financial Statement

Maintaining Monthly Business Profit and Loss Statements

Too often, small businesses do not produce a profit and loss statement until they are approaching year-end. However, having your balance sheets and income statements updated monthly can be helpful in numerous ways:

  • Eliminates surprises — by maintaining these records accurately monthly, you will have a greater understanding of your business’s financial situation. This can be especially helpful if you are considering new business investments, including hiring new staff, purchasing equipment, or purchasing materials.
  • Available when financing becomes necessary — we all know that the loan application and processing time is stressful. However, having accurate financial information to present at the time of your application may help you reduce stress, it shows the lender that you are organized and understand your financials, and may make the application and approval process less time-consuming.
  • It allows for better strategic planning — being able to review your monthly historical profit and loss statements can provide insight into how your business is growing, especially if you can compare the current month to the same month from the previous year. Having these statements provided monthly also provides you with invaluable information for strategic planning of what lies ahead for your business.

While some businesses only use profit and loss statements on an annual basis, there are numerous reasons why it is beneficial for a small business owner to keep this information current on a monthly basis. These records provide valuable information to help you decide when it is time to move ahead or whether you need to rethink your current business plan.

close up of hands working at a laptop

Accounts Payable and Receivable: Aging Reports

Having a snapshot of your incoming and outgoing cash is a necessity. When you keep track of the aging of both your accounts receivable and payable, you can tell immediately if you will face a shortfall, or if you have cash on hand for unexpected expenses. Some of the benefits of maintaining an active and current aging report include:

  • Accounts Payable — an instant snapshot of what you owe and when is important to maintaining a positive relationship with your suppliers. Your accounts payable aging can also help you determine if you are taking advantage of any discounts offered by vendors for early payment on invoices. When you can take advantage of these discounts, you have extra cash on hand to meet regular obligations, as well as the potential to improve your profit margins.
  • Accounts Receivable — knowing that clients are not paying their bills on time allows you to focus resources on collections. You are in business to make a profit and receiving funds owed in a timely manner is imperative. You can make better decisions about extending credit to your customers by knowing their payment history.

Positive cash flow is a necessity for all business ventures. You need cash on hand to meet payroll obligations, rental or lease agreements, and to purchase materials necessary to fulfill your orders. Having a current record of exactly what cash you have coming in versus what is being expended can help keep you on track. This process can also help determine if you need to explore financing to allow you to bid on lucrative contracts. Having this information readily available helps you make better decisions.

We know every business owner faces cash flow and financing challenges. The smaller your business, the more challenges you are likely to face. At Baker Boyer, we are here to help offer customized money management solutions for businesses of all sizes. Contact our Business Advisors today by calling us at (509) 525-2000 and let us help find a solution that works for your business.