Beginning with the process of collating your company’s financial details and getting them organized into official documents, preparing a financial statement is an important and valuable aspect of running a business. But, it can be complex and time consuming, particularly if you’re not familiar with them and don’t have a head for figures, as many small business owners don’t.

Once the financial statement compilation is complete, it will be shared with significant stakeholders as investors, management, and creditors, who will use the information given to them to make a thorough and detailed performance assessment related to cash flow and overall financial health.

If you don’t have an experienced CPA to help you (which relieves 100% of the burden from your shoulders, by the way), here are the steps you must follow to prepare a financial statement:

Step One – collate all relevant financial information

Gather together all financial data, such as receipts, sales invoices, expense reports, and bank statements, which will be used to give you a much clearer idea of the financial standing of your business. Once you have this information, you can identify areas to reduce costs and make decisions for the financial future of the business, that are better informed.

Step two – organize the data into categories

When you have your financial data up together, you need to sort it, and file it under categories like expenses, revenue, liabilities and assets. Having your data organized properly will help make the drafting process more streamlined, and enable you to maintain regulatory compliance, and meet deadlines for reporting.

Step three – put drafts together of preliminary financial statements

Once the data has been organized, you’ll need to create and income statement, balance sheet, and cash flow statement to make a preliminary draft of the financial statements.

Drafting these involves many different steps, and many business owners find that hiring a CPA to help them, is the most efficient way to proceed.

Step four – conduct a review and reconciliation of all data

This step exists mainly to guarantee accuracy, and every entry must be reviewed, and all data reconciled to match your records with documents such as bank statements. It’s always worth double checking your figures and calculations for gross profit, and ensuring the accuracy of your recorded income. You should also confirm the matching of your debts and taxes, with what you have written down.

Any mistakes made during this step could give an inaccurate representation of how your business is doing from a financial standpoint, making working with a CPA to help you prepare a financial statement, even more important.

Step five – finalize and report

After the double-checking of all statements you’ve provided, you can begin finalizing them ready for reporting. This step might involve having them audited or reviewed by an external source, such as a CPA, to make sure they’re fully compliant with all relevant regulations and standards, but it will depend on the size and nature of your business.

Putting together a compilation engagement report is a vital step in any businesses journey, and because they tell stakeholders, potential investors and loan providers the status of your company’s financial position, they’re absolutely worth getting right, and an experienced CPA can help ensure this.