Different types of financial reports

Financial reports can sound confusing. There’s a whole list of numbers, acronyms and terms that you might get thrown at you, and they’re different depending on who’s asking.

What really matters, though, is what do you need to run your business. Usually this boils down into three categories: taxes, lending, and management.

Tax reports

Tax reports are what most people are familiar with. That’s when your tax return comes back. You might have a Form 1040 for your personal taxes, a Schedule C or Schedule E depending on your business structure and whether you have rentals or not, and possibly a Form 1120 if you’re an S Corporation. These are based on your taxable income.

The most important thing to know about your tax reports is that they’re fundamentally different than anything else. Your tax preparer should be able to take your tax reports and help you find extra deductions, extra business expenses, and other things that you can claim that will help you for that year. But all of that is independent of how well or how badly your business did.

Tax law is a huge, complicated field. As we’re thinking about that, most people think financial reports are tax reports.

They’re wrong. Those tax reports are just how we’re reporting to the government.

Lending reports

Lending reports are a little different. Most lending institutions will want a personal financial statement so they can understand you as a person as opposed to a business.

Lending institutions may also ask for something like a portfolio report for rental businesses, where you turn in a list of your properties, the rent you collect per month, the debt you service and how you perform in a nutshell. It will show the debt service coverage ratio (if all goes well on the best day) and the loan to value rate. That helps the bank understand the goals you’re hitting and your peak performance so they can decide where their risk falls on the bottom end. Debt calculators also fall under this. Lionshare does a lot of these for people.

The next report you might run into is past performance on projects, where you want to post the results of what you’ve done to this point instead of providing a snapshot of where you are. It’s something you can use as a summary to say “Hey, look at how cool we are. We know what we’re doing. Look at the returns we have.”

Lending reports prove credibility, but they don’t always line up with your tax return. You can maximize your tax return and maximize your lending. Both of these types of reports are for different people and different audiences. But they both have to be built on the same foundation of financial services reporting.

Management reports

This is the reporting you use in the day to day. This is what you use to decide how well your business is doing for yourself, not how the tax man thinks your business is doing or how the banker thinks your business is doing. You use these to set goals, understand how you’re doing and run your business correctly.

These include the profit and loss (or P&L), balance sheet, and statement of cash flow. By having these reports here and understanding your management bookkeeping differently from your tax returns and your lending reports. These are the foundation that everything is built on.

A lot of people think tax reporting is the same as management reporting. That is not correct. Your management reports directly influence how effective and accurate your tax and lending reporting is.

Financial reports can be a confusing topic, and if you don’t have a background in accounting or bookkeeping it can be hard to stay on top of them. Lionshare will help you understand your finances and create accurate reporting no matter who it’s for. Contact us today and let us help your business.

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