Entrepreneur Information: Your First Financial Report

Some of the most important information you will receive as an entrepreneur involves the legal requirements on your financial and tax reporting. When it comes time to put out your very first financial report, the quality of your work will not only help you grow your business, it will also keep you free from lawsuits. While financial reports used to be largely subjective brochures to make a company appear strong, they are now highly regulated and must be compiled in a manner in keeping with the financial accounting rules of your industry.

GAAP Accounting Principles

If you follow no other advice when preparing your financial report, at least be certain to use the Generally Accepted Accounting Principles recommended by the SEC. Private companies are not required to follow these regulations to a precise degree. In fact, there is no legal grounds for requiring this type of accounting for any company that is not listed on an exchange. However, the GAAP rules help protect you from possible shareholder or business owner liability from a disgruntled investor. GAAP reporting is the national standard, and following this standard will help you avoid unnecessary lawsuits or complaints from investors and lenders.

Forecasting

Forecasting gives you an opportunity to project your goals and ambitions for your financial future, even if these goals have yet to be achieved. You should not include pending sales or projects on your actual financial report this year; in fact, this is a violation of the "prudence" rule of GAAP, which says only closed transactions should be listed. However, you may know you have a pending sale that will greatly change your financial standing. Forecasting gives you an excellent opportunity to disclose this information, showing your strength in the future.

Clarity of Your Report

The information in your report is only half the battle. The next step is to make sure it is presented in a clear, concise fashion. Many small business owners will hire graphic design or desktop publishing consultants to manage this aspect of putting out the report. Hiring an individual experienced in information layout may greatly help your cause, and it will certainly save you hours of time in front of a computer. If you are wary of hiring an independent contractor, consider working with a business support company that produces brochures and reports for businesses every day.

Privacy of Your Report

Once you have reported all current progress fairly and forecast future success, the question becomes who to share the information with. Smart business owners know financial reports should only be shared with a close network of individuals. A financial report can be a strong marketing tool, but it is only valuable when presented at the right time to the right individual. Therefore, if you are placing your report online or otherwise in the public eye, make sure it is at least partly guarded. Many companies will request a password for online viewing of the report. Others will only permit the report to be viewed through an independent mailer by interested investors.



What should you include on your quarterly financial report?



A quarterly financial report may be issued internally or to investors to track the status of your company's financial health. First, it is essential to follow GAAP (generally accepted accounting principles) when you issue any financial report. To do so, include the following:

  • Earnings and Assets--You may include only actual earned or owned assets at the time a report is issued; expected gains and assets may not be included.
  • Liabilities--You are required to report current liabilities, but you may choose to omit expected liabilities in the future.
  • Supplemental Information--This is your place to supply information about expected future assets and liabilities. Pending sales, pending lawsuits and other information will go here.


How do you determine the break-even point on a quarterly financial report?



Your quarterly financial report may include several break-even points. You can choose to have a break-even point for each quarter, year or even for the general cycle of your business.

  • Quarterly break-even point--This is the point where your quarterly expenses, such as salaries, rent and business expenses, have been paid for out of your quarterly earnings after interest and taxes. 
  • Annual break-even point--This is the same as the quarterly point but arranged on an annual basis. 
  • Total break-even point--This is the point where your business begins to earn a profit. You have paid for your start-up loans and costs, and you have more assets than liabilities on your balance sheet.
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