Accounting and finance is a crucial department for all businesses regardless of the industry they are operating in. It is why business owners need to know about the nitty-gritty of the financial statements to comprehend the overall profitability and liquidity.
As for a subcontractor, you don't have to worry and take accounting classes to manage your financial reports.
You can take advantage of a financial report management app to make things easy for you. In addition, subcontractors can learn a little more about financial management and cost control to manage their business's finances efficiently.
So, what financial statements are important for a subcontractor? And how can you comprehend them to boost your business? We will discuss all of these things and a lot more in this article.
What Are The Most Important Financial Statements for A Subcontractor Business?
Before discussing how you can manage the financial statement, we need to understand the important ones for a subcontracting business. Let's go over these key financial statements and get an overview of what these tell about any business.
Income Statement
Firstly, the most important financial statement is the income statement. It is also known as the Profit & Loss statement since it gives you an overview of whether your business is making a profit or incurring a loss. The structure of the income statement is as follow:
- Total Revenue
- COGS (Cost of Goods Sold)
- Gross Profit/Loss
- Expenses
- Net Profit/Loss
Subcontractor businesses can know about the performance at the end of the financial year by going over the income statement.
An income statement can help you identify the areas where you think you are spending more than you need. To summarize, a P&L statement can help you assess your subcontracting business's profitability.
Balance Sheet
While the income statement tells you about the probability of your subcontracting business, the balance sheet tells you about the liquidity. Liquidity refers to the ability of a business to convert its assets into cash. The formula on which the balance sheet is calculated is:
Assets= Capital + liabilities
There are two types of assets and liabilities that you can find in your balance sheet.
- Current Assets: Those assets which the business can convert into cash within 12 months, such as account receivables, cash in the bank, etc
- Non-current Assets: Those assets that the business takes on for a long time, such as land, equipment, etc
Cash Flow Statements
The most important financial statement for a subcontracting business is the cash flow statement. It helps the subcontractors to know the areas where their money is going and those areas where they are receiving money.
Since you can work on many projects at the same time, cash flow statements can help you keep track of the cash outflows and inflows. It will tell you about the day-to-day expenditure you incur for each project and the income you are getting from your clients.
Tips for Financial Reports Management for Subcontractors
For subcontractors, managing and understanding their financial reports can be challenging. Nevertheless, you cannot simply ignore it as financial statements play a vital role in your subcontractor business's success.
Therefore, to make things easy for you, here are a few tips that you should use. It will get financial reports management done right for your subcontracting business. Let's get right into it.
1. Use Financial Report Management App
Not everyone has to be an accountant or a specialist to understand the financial report. The new financial report management app can help you comprehend, analyze and manage your financial statements in no time. You can get plenty of benefits by choosing one.
Automation is the driving force behind many businesses' success in various industries. The same goes for the subcontracting companies in construction, which can use robust applications to make it easy for them to understand the financial reports.
Moreover, using a financial report management app can give you access to dashboards that can simplify the accounting ratios for you. You don't have to go running around an accountant to ask for help in understanding your financial statements since the mobile app can do the job for you.
2. Learn More about the Accounting Jargons
There can be times when you come across different terms in your accounting and financial statement that you might not understand. You will find words like bad debts, accruals, equity, working capital, etc., that will make you think comprehending or analyzing the financial statements is not your cup of tea.
However, those are simply jargons that you can find for any profession. Simply going over a glossary to understand all of these terms can do the job for you. Therefore, another tip to get financial reports management right for you is learning the accounting jargon.
3. Maintain Chart of Accounts
A large subcontracting company can get an in-house or a remote team of accountants and people from finance backgrounds to sort out their transactions. However, it might not be the case for a small subcontractor business to afford a finance team to look after their financial reporting.
Nevertheless, you don't have to worry about it as we have the right tip for your small subcontracting business to deal with this issue. You can maintain a chart of accounts that classifies all of the transactions as:
- Assets
- Liabilities
- Revenue
- Expenses
At the end of the day, it will make it easy for you to create financial statements or understand them if you have a part-time accountant to create your reports. It will save you the time and energy you would have put in to sort out the transactions when managing your financial statements.
Takeaway
Subcontracting and accounting are two different fields, but they go side by side with each other if you want to take your business to the next level. By understanding the financial reports management, you can find ways to reduce your subcontracting business's overheads, resulting in more profitability.
To summarize, all you have to do is have a financial report management app by your side to record, analyze, and manage your accounting system. This, along with an understanding of the accounting jargon, will be more than adequate for effective financial report management for subcontractors.
