Financial statements enable you to have a general understanding of how your business is doing. They also help you comply with regulations such as taxes.
Now, we’ve seen before that two of the three most important financial statements, for any business, have a specific single use that make each of them unique.
First, we saw how the cash flow statement is easily prepared on excel and understood that it’s non-accrual recording format is key in knowing whether your business has enough working capital. We then understood that the income statement is best used to make decisions on profitability of the business.
But there’s the one more financial statement that we did not look at. This is the Statement of Financial Position. We look at it today:
How the statement of financial position may look like on excel
|[Your Business Name]|
|Statement of Financial Position for Period ended||(Date||Here)|
|Year 1||Year 2|
|Non-Current Assets (equipment, property, etc.)|
|Current Assets (inventory, cash, trade receivables, etc)|
|Non-Current Liabilities (long-term loans)|
|Current Liabilities (overdrafts, trade payables, tax, etc.)|
|Equity/Capital (retained earnings, share capital, etc.)|
|Total Equity/Capital and Liabilities|
The Statement of Financial Position reveals the overall state your business is in. It reveals how much assets are under your business’ name or your name, depending on the business structure, by recording the amount of capital invested by you, the owner, and by outsiders in the form of creditors. It is necessary that you disclose all information to make for a proper statement of financial position.
This is the financial statement you use to acquire capital. In as much as the other statements we looked at before are important for investors and creditors, this is what they really need. Unless, of course, your business is just starting. In that case you will show them your earnings projections in your business plan.
The Statement of Financial Position reveals to a prospective investor or creditor the capital structure of your business. Two of their many questions that will be answered are, “do you have too much debt?” “is your business liquid enough?” These are answered through financial ratios – here are some basic ones that every woman entrepreneur should know about.0