3 Important Financial Statements for Budgeting

Budgeting is a critical aspect of business planning. It entails preparing financially for what lies ahead. A well-thought-out budget plan is a foundation for creating a successful action plan for the business.

Budgeting enables businesses to control their finances which can be better utilized to fund current commitments or future projects. It also empowers businesses to meet their strategic objectives and make confident financial decisions. Successful businesses create budgets and review them on a regular basis to monitor their financial situation and business performance.

If you’re running a business, and would like to budget better, but aren’t sure where to begin, here are three important financial documents you should start with.

1. Profit and Loss Statement

Budgets must take into consideration the costs and revenue-drivers of the business. This helps analyze sales from all clients as well as expenditures, and how they impact the business. Data from the past can be used to work out the anticipated profit for the next year. However, businesses cannot be run solely based on profit and loss prediction.

2. Cashflow Forecast

While profit and loss forecast is the first step, cashflow forecast is the next step to ensuring continued revenue for your business. That’s because, while it is possible to make a good profit, businesses may not have enough liquidity to repay their loans.

When you add a cashflow forecast to your budget, your business can expect to operate at a higher consistency of revenue generation than before. It also helps to future proof your business, and plan for corrective measures before a crisis occurs. By timing cash inflows and outflows, businesses can support new initiatives in the future.

3. Balance Sheet

The last important financial statement for budgeting is the balance sheet. It summarizes the business assets, its liabilities, and the difference in those amounts (called the equity). The aim is to keep the asset part higher than the liabilities for the business to sustain in the long run.

These three financial statements are powerful budgeting tools that can be used to determine profit, liquidity required for payments, and ascertain the net worth of the business. They give you a clear picture of the accounting and finances of your business. Their purpose is also to predict realistic financial projections based on which crucial business decisions can be taken.

However, it takes time and experience before businesses become adept at accurately forecasting financial projections. When they are caught up in the nitty-gritty of daily business operations, it becomes difficult to see the bigger picture and ascertain the businesses’ current financial health and future. That’s where an independent and experienced accounting partner can contribute significantly.

A tie-up with an experienced accounting partner can help businesses take care of creating, monitoring, and updating the three main financial statements for better budgeting. By moving accounting and bookkeeping tasks to the partner, companies can focus on time-intensive core business activities. If you want to improve budgeting for your business, or require support for your accounting and bookkeeping tasks, SmartFin can help you.  We have over ten years of expertise in providing end-to-end accounting services for clients across the globe. With your accounting taken care of by experts, you’ll have your business operations running smoothly with no unforeseen financial hiccups. Drop us a line if you would like to explore working with us.

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