Sometimes when you have to provide financial information to outside parties, it is necessary to dress up your financial statements.
When reporting to the government, we suggest the minimum amount of information disclosed. As with all government contact, give them what they can legally ask for and ignore the rest. Too much information is worse than too little information.
When trying to establish new or additonal lines of credit, you may want to provide additional information to be as impressive as possible. This blog suggests some ideas that you can adopt.
Your monthly information should have mostly management value that helps the business run better. The details of each area is important. In the case of new projects you want to be able to determine the financial impact, so you may need more information. All of these “details” are important in the use of your financial statements. However, details in this format are not necessarily good for you when you want to impress other people.
Two main statements that you need to concern yourself with are the income statements (show the revenues and expenses of your operation) and the balance sheet (where you show the assets of the company along with what the company owes outside parties). Below are some guidelines.
Consolidate the operating or income statement as much as possible. The key factors to include are sales, gross profit, inventory, wages, rents and other operating-type numbers. There is no need, for instance, to separate all of the different levels of payroll such as ownership and management. These numbers can be provided separately. Another example is to reduce the number of lines of sales. This should be consolidated into one line. You want to show that you have a viable operation, not invite conversation about a sales category.
Sometimes however, it is necessary to separate items. This point is for businesses that work on more than one idea at a time. Often many businesses mix different activities into the same operation. Examples of this include sub-leasing, wholesale activity and sideline activities. When these are combined with the core activity of, say, a vitamin store, you hide the true operational results of the main business. The other readers are not interested in these sidelines -they are interested in how you make your money. Sometimes these little adventures cost us money, or are still in the development stages. This being the case, they are making the core business look bad when, in fact, it is doing well enough to support these outside activities.
Many readers are trying to determine the trends in your business. Show management accomplishments and growth rates. Many companies show the prior year in their statements. There is nothing wrong with the consolidation of several years on one page. Here you can see how company growth and cost controlling measures.
The balance sheet is different . Here some additional detail can be useful.
Detail the various assets you actually have.
Show the key current items such as inventory, accounts receivable and cash. This will show your reader your liquidity. Show the payables split among remittances required by governments and those to outside trade suppliers. Show any money due to the principals of the company separately.
Reduce details in the fixed asset area to the main categories of land, building, equipment and leasehold improvements. Group together all of the accumulated depreciation and amortization.
The reader should be able to easily extract information about who you owe money to and how much you owe. They should be able to see how much money you have in the business.
In conclusion, skilled accountant can easily prepare these statements for you, but that does not change your involvement. Read your own statements to make sure they are telling the story you want told.