Your company needs to make financial management a top priority. You simply can’t run a business without a good understanding of accounting.
There are a lot of aspects of financial management that you have to get right. One of the most important things is to create realistic financial projections. You need to know about the different types of financial statements that you will end up creating and how to make them correctly.
There are global rules set forth for organizational accounting. These are called the International Financial Reporting Standards. Regardless of the size of your business, you will have to keep track of financial statements and be prepared to present them during audits, quarterly and annual reports, or other governmentally mandated times. These reports can also be requested by the public, shareholders, creditors, debtors, and potential investors.
It may sound daunting, but the IFRS only exists to make your financial life easier. Think of it as a common language that everyone knows, just in regards to your transactional statements. This way, you can present documents that are sensical and easy to follow, lessening the chance of mistakes and misconceptions. The IFRS allows you to adhere to consistent standards in these reports that are well-known around the world. Find out the financial statements required as put forth by the IFRS.
1. Delegate Responsibility
Whenever you receive or need to prepare a financial statement, you should have a go-to person in your organization. If you are a small business, this could easily be the founder of the company. If you have an accounting department, different tasks can be split up between employees. Whatever the case, it needs to be clear who is responsible for which items. An easy way to do this is to use a project management system, assigning clear deadlines for financial statements. Make articles and guidelines readily available in company-wide documentation. Clearly outline when and where these financial statements should be submitted. You can also consider outsourcing to a financial advisor that specializes in preparing statements in accordance with IFRS standards.
2. Know the Right Reports
Whether you have just a few transactions or hundreds coming in daily, the same reports are required of for-profit and non-profit organizations. Generally, you need reports that satisfy the same four informational requests:
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- Balances
- Income
- Cash flow
- Ownership
This is as easy and straightforward as it sounds. Each item will look relatively the same across different types of businesses, big and small. This financial information is used to determine the net income and projected cash flow and assets of a business, providing insight into what typical finances look like and allowing investors and the like to make decisions.
3. Prepare the Information For Each Documentv
For balances, you prepare balance sheets. These detail the current balances of the company’s assets. Current, past, and future assets are used to inform the forecasted financial situation. Usually, current assets are comprised of short-term liabilities and capital, such as cash, stock inventory, prepaid liabilities, securities, and other “liquid” assets. Non-current assets are comprised of investments, property, equipment, and more that gain and lose value over time. There are guidelines and templates you can use to create a balance sheet.
To document your income, you provide income statements. This is arguably the simplest of all the documents. You calculate the income and net profit of your business and all entities involved. Cash flow sounds similar to income, but it has some key differences. When drafting a cash flow statement, include all sources of cash flow, including those from investments, inventory, and the like. This shows where your beginning balance is going and how it ebbs and flows over time.
Ownership is also an important part of financial reporting. Document ownership by determining owner’s equity. This is, basically, an individual or entity’s rights to a percentage of the company’s assets. This is determined on a case-by-case basis, but it usually has to do with how much the shareholder has invested initially. You will prepare a statement of owner’s equity that includes itemized expenses and net worth of each business owner and shareholder.
4. Format and Store Systematically
After you have gathered the appropriate documents, it’s important to check out the proper formatting. The IFRS includes a specific format accepted internationally. If you are using a template, make sure that it explicitly states its compliance with international standards. This way, there won’t be any confusion and scrambling to fix the documents when it’s time to present them to any organizational body or individual. If you don’t want to use a template, consult a financial advisor familiar with IFRS standards or research examples that follow IFRS guidelines. Many outlines and models are available across the internet, so make sure your delegated financial reporter is abreast of these formatting rules and any changes that may occur.
Then, you can be prepared, storing your important financial documents in the right format. Make sure they are easy to access in the event you need to present them quickly. Often, larger companies will utilize financial software, such as QuickBooks, to store and compute financial reports. Following the guidelines put forth is easier than it appears. These resources are intended to help you streamline your financial documentation, making reporting easy and seamless. Once you’ve followed the four steps above, you’re well on your way to preparedness for whatever is thrown your business’ way.