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What you need to know about creating financial reports: budgeting and forecasting

Financial reports or statements are crucial for tracking the financial health of your business. They're also important for setting goals, making sound business decisions and obtaining finance.

While you may rely on an accountant to prepare your financial statements, always check them carefully for accuracy and ask questions. With your knowledge of your business and some financial training, you can ensure that your statements are up to date and accurate.

Ensure that you have a basic bookkeeping system set up to ensure you keep track of all your financial situation.

Free financial templates

Start preparing your own financial reports with these free templates:

  • Start up costing

    If you're thinking of starting a business, a start-up costing sheet can help determine how much money you need to start. This can help you find the right amount of finance and determine how much money you need to invest from other sources. Your start-up costing can be prepared well before you start your business and can give you a more realistic idea of what it will cost.

  • Cash flow

    A cash flow statement can be one of the most important tools in managing your finances. It tracks all the money flowing in and out of your business and can reveal payment cycles or seasonal trends that require additional cash to cover payments. This cycle or pattern can help you plan ahead and make sure you always have money to cover your payments.

  • Profit and loss

    A profit and loss or income statement lists your sales and expenses and is generally recorded on a monthly, quarterly or yearly basis. It tells you how much real profit you're making or losing. A profit and loss statement can help you develop sales targets and an appropriate sales price for goods/services using tools like the break-even, profit margin and mark up calculators. See our analyse your finances page for more information about these financial tools.

  • Balance sheet

    A balance sheet is a snapshot of your business on a particular date. It lists all of your business' assets and liabilities and works out your net assets. A balance sheet can also help you work out your working capital (money needed to fund day-to-day operations) and business liquidity (how quickly you are able to pay your current debts), which can give you a good indication of the financial health of your business.

Budgeting vs forecasting

Your budget is your planned revenue and expenditure, and allows you to allocate funds for specific purposes that are often known in advance. A budget is often prepared quarterly or yearly.

A forecast is done on a more frequent basis (often monthly). The figures used in the forecast are predicted based on the past and current trends in your financial statements. A forecast can give you a more realistic measure of where your business is heading and can help you to avoid problems before they occur. Forecasts are used to help plan a more accurate budget and are often sought by lenders when considering a finance application.

Cash flow forecasting is one of the most important forecasting tools for business and can help you avoid serious financial problems. It can also help you keep on top of your bills and is useful when seeking finance, as it shows lenders you have the capacity to pay them back.

© Commonwealth of Australia 2016. 

This content was first published on www.business.gov.au

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