A small business financial statement is defined as a formal record of the financial activities of a company that has a total staff number that is less than a hundred. It aims to give a summary of the productivity and financial status of a particular small business in both the short and long run. In addition, small business financial statements have a number of types and are used by both internal and external entities that are associated with the business.
A small business financial statement has three major types. The balance sheet contains the liabilities, assets, and net equity of a business within a specific given period of time. The income statement contains the losses and profits obtained by the business. Furthermore, the cash flow statement describes the inward and outward movement of the money of a small business.
Financial statements are used by entities within and outside the small business. First of all, small business managers and owners need financial statements in making decisions regarding the present and future operations of their companies. Meanwhile, employees use the company’'s financial statement in discussing with their superior certain matters regarding their salaries or promotion.
With regard to external entities, prospective investors examine the current financial statement of a small business before choosing to make an investment on the company. Furthermore, banks and lending companies refer to financial statements submitted by businesses before granting loans or working capital. Tax authorities also use the financial statement in verifying if the taxes which were declared by a company are consistent and accurate.
