You’ve heard of it all too frequently: 90% of startups do not succeed. A study made on about 100 startups, indicated that the top reason for their failure is that the market does not need the product or services created. This was the main reason for 42% of those surveyed.
In second place, with 29%, is "not enough funding." This doesn’t mean that there wasn’t cash at the beginning or a few years into the business. It just ran out. Part of the reason could be poor financial planning. It doesn’t matter whether you're are a medium-sized company based in New York or a startup in Kent well into your second year. Taking care of financial processes is crucial to the survival of your business.
Startups that look ahead and anticipate growth will always include the services of accountancy firms to help manage their books. Financial processes like bookkeeping, monitoring cash flow, and scheduling payments like salaries and purchases help you determine the health of your business. And one of the most important is the preparation of a year-end financial report.
Here are a few things to take note of when preparing your year-end financial report:
Can’t I wing it? Why do I have to bother with these financial reports? Because your business will die if you don’t. Remember the 29%? The practice of financial accounting dates back to ancient civilizations. Traders and businessmen from ancient Egypt and Babylon would keep track of their transactions selling and buying livestock, other animals, and crops through some primitive form of accounting. If it helped them even without the aid of computer technology, it would help your business if you stick to the practice.
Preparing the Financial Report
Your board or stakeholders need to know the health of your business. You also need to pay government taxes to continue operating. An accounting report is necessary. Here are a few things to note when preparing your year-end financial report:
- Hire a bookkeeper. If you don’t have one yet, consider hiring one. An ad-hoc approach won’t work in the long run. You need someone to handle the books competently and professionally.
- Prepare early. You need to fill in W-2 forms, reconcile your checkbook accounts, determine payables to suppliers, plot how much is owed to you by clients. Getting all this information takes time, and if you don’t have a bookkeeper, it will take longer. So you need to prepare early. A month to month, if not a week to week tracking, is a good practice.
- Tracking expenses. Have a system for tracking all your expenses and purchase records. This means keeping either a hard copy or a digital copy of receipts. Ink on thermal paper receipts fade. Digitized them by scanning.
- Understand your financial statement. The balance sheet and the profit and loss statement or P&L are the two main components of your business account. An accounting firm can do this for you, but you and your bookkeeper, with the help of the latest software, can help generate these two reports. The balance sheet identifies what you have—your assets and the P&L describe the relationship between your income and your expenses and thus outlines your net profit.
Your year-end financial report will give you a snapshot of the status of your assets, which is summarized int the equation assets = liabilities + owner’s equity. Knowing that your business is not meeting your income target allows you to make the necessary changes for the following year. It might seem daunting, but preparing a year-end financial report is just a matter of being organized and having a professional help you.