Solid financial reporting can help attract debt and equity financing

Financial reporting plays a key role when a business needs funds for continued operations and strategic investment opportunities.

Nirali Thakkar
February 1, 2024

Lenders and investors will generally want to review your company’s financial statements before they give it money. Timely, reliable reports can increase the odds that a bank will approve your company’s loan application and equity investors will provide capital.

Relevant financial information

Financial statements are a must-have for any organization. The balance sheet reveals how much its assets and liabilities are worth based on historic costs. The income statement tells investors and lenders how profitably and efficiently the company has performed during the accounting period. The statement of cash flows details sources and uses of cash from operating, investing and financing activities. This information helps company insiders — as well as lenders and investors — make better-informed business decisions.

Lenders and investors monitor the financial condition of companies in their portfolios on an ongoing basis. They’re particularly focused on industry sectors that are susceptible to market fluctuations, such as real estate, construction, restaurants and retail. Business owners should be prepared to respond to changes in their stakeholders’ reporting requirements if the economy gets tough or simply changes.

Levels of assurance

While financial statements can be prepared in-house, lenders and investors typically prefer reports that are prepared by outside accounting firms. CPAs offer the following three types of historical financial statements under U.S. Generally Accepted Accounting Principles (GAAP):

1. Compiled statements. These provide no assurance that the financial statements are accurate, complete and comply with GAAP.

2. Reviewed statements. These provide limited assurance that the financial statements are accurate. Typically, your accountant will review the statements to ensure that obvious errors or misstatements are corrected.

3. Audited statements. These provide reasonable assurance that the statements are free from material misstatement and conform to GAAP. Audits are seen by many as the “gold standard” in financial reporting.

In some cases, compiled financial statements — the option that provides the lowest level of assurance — might suffice. But when a stakeholder decides to manage risk more closely, it could require reviewed or audited statements. As the level of assurance increases, so too can the associated cost to prepare the financial statements. A close partnership between your company’s accounting department and its CPA firm is critical to minimizing the cost and lead time associated with preparing financial statements.

In addition to the types of statements lenders and investors may request, the frequency of statement production also may change. For example, they may request interim statements (typically quarterly or mid-year) that summarize a reporting period of less than a full financial year.

What’s right for your business?

Financial statements provide a wealth of data and insight into what drives your company’s revenue, profits and value. Above all, solid financials demonstrate to lenders and investors that management is proactively monitoring financial performance. Contact us to determine what level of assurance and frequency is appropriate for your company based on its current needs.

Did your business buy the wrong software?

No one likes to make a mistake. This is especially true in business, where a wrong decision can cost money, time and resources. According to the results of a recent survey, one of the primary ways that many companies are committing costly foibles is buying the wrong software.

Best practices for M&A due diligence

Participating in mergers and acquisitions (M&A) offers growth opportunities for businesses, but also comes with its share of risks. It's crucial for buyers to have a thorough understanding of the strengths and weaknesses of potential partners or acquisition targets before proceeding with any deals.

Perform an operational review to see how well your business is running

In the wide, wide world of mergers and acquisitions (M&A), most business buyers conduct thorough due diligence before closing their deals. This usually involves carefully investigating the target company’s financial, legal and operational positions.

Tax-favored Qualified Small Business Corporation status could help you thrive

Opting to run your small enterprise as a Qualified Small Business Corporation (QSBC) might be a smart tax strategy.

Navigating Year-End Finances: A Real Estate Broker’s Guide to Cost-Effective CPA Solutions

As a real estate broker, you're accustomed to navigating complex deals and managing a multitude of tasks. However, when it comes to managing year-end finances, even the most seasoned brokers can find themselves in murky waters

Unleashing the Power of NetSuite: Why Your Business Needs an Expert CPA Firm

In the realm of business management, NetSuite stands out as a powerful tool designed to streamline operations and enhance financial visibility.

Financial Mastery Without Full-Time Costs: The Strategic Edge of Fractional CFOs for Tech Leaders

In the ever-evolving landscape of the tech industry, where innovation is the currency of success, financial management plays a pivotal role in shaping the trajectory of your tech firm.

New Year, New Numbers: Top 10 Accounting Priorities for a Smoother Tax Season

As the calendar flips to a new year, business owners find themselves at the threshold of a crucial period—tax season

Countdown to Tax Time: Affordable CPA Strategies for E-Commerce Success

As an e-commerce business owner using the powerful NetSuite platform, the countdown to tax time can bring both anticipation and anxiety.

Key 2024 inflation-adjusted tax parameters for small businesses and their owners

The IRS recently announced various inflation-adjusted federal income tax amounts. Here’s a rundown of the amounts that are most likely to affect small businesses and their owners.

Best practices for effective board meeting minutes

If you think the recorded minutes of your nonprofit’s board meetings are just a formality, think again

Businesses: Know who your privileged users are … and aren’t

Given the pervasiveness of technology in the business world today, most companies are sitting on treasure troves of sensitive data that could be abducted, exploited, corrupted or destroyed

Accounting for M&As

Business merger and acquisition (M&A) transactions have significant financial reporting implications. Notably, the company’s balance sheet will look markedly different than it did before the business combination.

Using QuickBooks to prepare 2024 budgets and forecasts

As year end nears, many businesses and nonprofits are planning for 2024. QuickBooks® provides budget and forecast features to help management make financial predictions, as well as assess “what if” scenarios to help make more-informed business decisions.

Tips for QuickBooks users: 5 mistakes to avoid during bank reconciliation

Reconciling bank accounts is critical to ensuring the accuracy of your company’s accounting records. The primary purpose of a bank reconciliation is to confirm that the transactions recorded in your bank statement match those shown in your accounting records.

Shareholder advances: Debt or equity?

From time to time, owners of closely held businesses might need to advance their companies money to bridge a temporary downturn or provide funds for an expansion or another major purchase

Revitalize Sales Strategies for the Digital Marketplace

E-commerce business owners, as the year draws to a close, you and your leadership team are likely fine-tuning your vision for 2024.

Maximizing Cash Flow in Real Estate: The Power of Cost Segregation Studies

Is your real estate business fully capitalizing on the depreciation of your property investments?

Some businesses may have an easier path to financial statements

There’s no getting around the fact that accurate financial statements are imperative for every business. Publicly held companies are required to not only issue them, but also have them audited by an independent CPA

Key Performance Indicators (KPIs) for SaaS Businesses: A Comprehensive Guide

Software as a Service (SaaS) has revolutionized the software industry. The transition from traditional software licensing models to subscription-based, cloud-hosted services offers businesses scalability, flexibility, and significant cost benefits

3 types of internal benchmarking (KPI) reports for businesses

As each year winds to a close, owners of established businesses can count on having plenty of at least one thing: information.

Are you ready for year-end inventory counts?

As year end approaches, it’s time for some calendar-year businesses to perform physical inventory counts. This activity is more than a time-consuming chore; it’s an opportunity to improve your company’s operational efficiency.