Interim Financial Statements: What They Are and Why Your Small Business Needs Them

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Two significant financial challenges that small businesses frequently face are cash-flow and liquidity issues, and without a solid grasp on financial management, many small business owners find themselves making difficult and costly decisions out of stress or fear.

There are many tools that can help you better manage your finances to ensure that your business stays strong, and among the best are interim financial statements.

In this brief article, we look at ways in which interim financial statements differ from annual financial statements, why you should regularly review yours and how to easily generate them.

Similarities and differences between interim and annual financial statements:

While most small business owners are familiar with annual financial statements, many entrepreneurs are less familiar with interim financial statements. Interim financial statements contain the same documents as found in annual financial statements – that is, a profit and loss statement, balance sheet, and statement of cash flows. Although both are useful tools for tracking your business’s financial health, there are some key differences between the two:

  • The amount of time covered: Annual financial statements cover a full year and offer a comprehensive look back at your business’s overall financial performance, while interim financial statements are generated more frequently, such as every month, quarter or six months. As such, an interim statement is sometimes referred to as a year-to-date statement.
  • Disclosures: Most companies must include disclosures in their annual financial statements. These disclosures are an explanation of your business’s financial statements, which otherwise might not be immediately obvious on their own. Disclosures are included in annual financial statements to create a sense of transparency between a business and its investors, stockholders and the public. While interim financial statements should be transparent, they require less disclosures or a more summarized format of the necessary disclosures.
  • Seasonality: Your business’s financial position may be somewhat skewed (positively or negatively) by the season or the time of year. For instance, holiday buying seasons or summer seasonal boosts can have a significant impact your business’s revenues and expenses, and so, your interim statements may reveal periods of major losses and profits, which are not normally evident in the annual financial statements.
  • Who prepares them: Interim statements are often prepared by the owner, or a bookkeeper on staff, especially for small businesses. Annual statements (such as a tax return filing), however, are typically prepared by a CPA. For small loan requests, most lenders will accept interim statements that are not prepared by a CPA (provided that they are accurate), while annual statements and tax returns should be prepared by a certified CPA.

The benefits of interim financial reports

Small business owners often think that interim financial statements don’t apply to their business due to its size, but all small businesses benefit from creating and reviewing these documents on a regular basis. Here are just a few of the advantages you can gain with interim reporting: 

  • Regularly reviewing interim financial statements helps you identify key challenges that can be addressed before they become overwhelming, as well as opportunities that might otherwise be overlooked.
  • Interim financial statements provide a more nuanced and detailed view of your business’s financial trends, helping you spot – and leverage or mitigate – things like seasonal or cyclical ups-and-downs, significant changes in expenses or other issues.
  • These reports are frequently requested by potential lenders and investors. Regularly reviewing yours not only gives you deeper insight, but also enables you to speak more knowledgeably to people who can help you strengthen your financial position.

How to generate interim financial reports

If you’re already using a small business bookkeeping software program, like Xero® or QuickBooks®, then you’re likely familiar with how to generate annual financial statements. When you want to create interim financial statements, you simply adjust the date range for the reports so that the timeframe reflects the quarter, month or half-year period that you’d like to review.

If you’re not yet using bookkeeping software to manage your small business finances, Pursuit has numerous online resources that can help you understand why bookkeeping is important, how these programs can help you and how to work with a certified public accountant to better manage your finances.

All small businesses benefit from interim financial statements

Simply put, businesses benefit when owners are better informed about financials, even if your business is a sole proprietorship with you as the single employee. By using interim financial statements to guide your decisions, you’ll stay on top of trends and leverage opportunities, meet challenges head-on before they derail your progress and impress everyone you meet, including potential lenders and investors, who can help you on the road to success.

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