Why Does a Small Business Need Accounting Reports?

Small business owners typically don’t issue GAAP-based financial statements.

Instead, they rely on accounting reports to help them monitor their business’s
profitability and financial health.

Accounting reports give a small business owner information about their operations,
cash flow, net income, accounts receivable, accounts payable, and financial
position. Understanding the data in these accounting reports helps a small
business owner allocate resources better and make informed decisions.

They may also give accounting reports to their investors, lenders, and tax
preparers, as needed.

You might find accounting reports useful for:

Credit decisions: Lenders use data in your financial statements to determine if

they should extend credit to a business or restrict the amount of credit extended.

Investment decisions: Investors analyze an accounting report to decide whether

to invest and what price per share at which they want to invest. The information is
used to develop a potential selling price for the company.

Taxation decisions: A business may be taxed based on its assets or income, and
that amount can be derived by the government using information from financial
statements.

Union bargaining decisions: Financial statements can be used by a union to

base its bargaining position based on a company’s ability to pay.

These are just a few purposes of financial statements. There are many more—
including the important internal decisions you need to make as a business owner
about your own profitability and growth.