4 Things You Need For Smart Financial Planning For Your Small Business
When making any kind of decision, having the right information on which to base your decision is key, and these financial business decisions are certainly no exception to this rule. Indeed, more so than in any other area, the financial decisions you make for your small business must be based on a robust foundation of data. The good news is you can discover precisely what type of information you will need for your decision-making process below.
A Balance Sheet
First, on the list of pieces of info, you need to make smart business decisions is a balance sheet. This is basically an overall summary of the performance of your business in the form of its net worth. A sheet that shows a positive balance means that you are starting on a robust financial foundation.
To calculate your business balance or net worth you need to total up the value of all the money that you owe to others, including suppliers, organizations, and banks. You then add this to the equity that is how much you and others put into the business. The last step is to take this figure away from a total of all the assets that you own and you will have your balance.
Of course, knowing whether your business has a positive or negative net worth is vital when making financial decisions because it informs you and other investors of the amount of risk involved.
Statement of Stockholders Equity
It’s also essential to have a Statement of Stockholders Equity to hand when making financial decisions for your business. The reason for this is because it will help you determine how much of the profits you make should go to your shareholders and how much you will have left to invest in the long-term success of your business.
Also, such a statement is crucial when working out expenses on your balance sheet. Indeed, if dividends are less than expected, it may even trigger a search for additional investment which can have a major impact on the financial health and planning of your business.
Statement Of Profit and Loss
Profit and loss statements are crucial to the financial decision-making process for your business in several ways. The first is that by reviewing the work you have already done you will be able to establish whether you have succeeded in your financial goals, as well as provide a baseline for any projections.
Secondly, by being able to make projections for the coming year concerning profit or loss you can make important decisions on whether to cut costs or to invest in growth and expansion.
A Cash Flow Statement
Another vital piece of information you will need to make sound financial decisions for your business is a statement of cash flow. This is a simple calculation comparing revenue to outgoing expenses.
Of course, it is so important because if the figures don’t balance the everyday operation of your business is in danger. Indeed, by having this information you will be able to course-correct and make much more effective financial decisions for the future success of your business.
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