Of all the financial documents that your company maintains, your financial statements are among the most critical. Lenders use your financial statements to determine whether your company is worthy of credit. Investors use them as a first screen to see if your company meets their investment criteria. Even potential vendors may use them before offering favorable payment terms.
Financial statements are also a powerful tool at helping you and your management team make informed decisions. When utilized properly, your financial statements can help you identify issues and take action to prevent potential problems from becoming real crises.
At Smolin Lupin, we've been helping business owners by reviewing and compiling their financial statements. Our assurance team works with you to do everything from compiling the three primary statements and the corresponding footnotes to doing a formal review of your statements and disclosures. In reviews, we analyze your statements to identify irregularities and to test their compliance with GAAP.
Your balance sheet is like a snapshot of your financial health at any given point in time. It compares your assets to liabilities and also calculates the amount of shareholder equity in the company.
Lenders and investors will use the balance sheet to analyze your debt levels. In particular, they may look at your short-term debt and see whether you have enough liquid assets to cover them. They may also look at a series of past balance sheets to see whether your debt levels have improved or declined over time.
You can use the balance sheet to learn a number of things about your business. For example, you can compare your debt to shareholder equity to see how your company is financed. A debt level that is too high may limit your ability to attract new capital. You may also look at the next 90 days of liabilities and compare that to your liquid assets to see whether you may have a cash crunch in the next quarter.
Also known as the "profit and loss statement," the income statement is a critical tool because it displays the bottom line. It covers a standard period of time - usually a month, a quarter or a year - and reports all income that was earned, all expenses that were incurred and the difference between those two numbers. The result is your net earnings, which is the most basic measure of profitability.
The income statement doesn't just report earnings, though. Most importantly, the income statement highlights profit margins. Reviewing those over a long period of time can tell you whether you're becoming more or less profitable. Compare these numbers to your business activity during the time and it's easy to formulate a plan to keep earning or reverse any losses.
Like the income statement, the cash flow statement is also based on a set period of time, like a quarter or a year. It shows you how cash is flowing in and out of your business. Cash flow is broken down into three separate categories - operations, investing and financing.
Analyzing cash flow based on these categories is an important practice. Start ups may see more cash come into the company from financing activities as they work to get their operations up and running. A more established business is likely less dependent on financing and more reliant on operational cash flow.
At Smolin Lupin, we assemble your statements, but we also help you interpret them. We can review them in detail and highlight both positives and areas of concern. We can show you the metrics that matter most to your business and how you can use those metrics to make important business decisions.
We can also review your financial statements for irregularities and GAAP-compliance. In doing so we compare your company’s financial statements to the company’s historical performance as well as to that of the industry. Once your statements are reviewed, we can stamp them with our “seal of attestation”. That makes them more credible in the eyes of lenders, investors and anyone else who may be interested in your financial standings.
For more information on our review and compilation services, please contact us today. Our assurance team would be happy to consult with you and advise you on which services may best meet your needs. We look forward to working with you to strengthen your financial statements and your business.