Financial statements are fundamental to the success of any business since they enable the owner to track the cash flow, revenue, and expenditure hence avoiding wastage. A new boutique is not exceptional since it is a profit-making entity, and the financial activities have to be tracked effectively for the business to grow and make a profit. In the case of a fashion boutique, the first step in preparing a forecast is studying the market to estimate the customer base.
Next is getting space in a place where the business will manage to cover for the fixed and variable expenses and still afford the owner a profit. Another important element in the start-up of a business is a forecast of the whole year’s budget. Garrison, Davidson, and Garrison (1998) stipulated that the forecasted budget is important in guarding against expenses not budgeted for and ensuring the money used to cover for the expenses can be accounted for (p. 24).
The first and most important statement in this business is a personal financial statement. This is a document that shows the financial position of an entrepreneur besides their business position. It includes a record of personal assets and expenditure heads. The main purpose of this document is to assess whether one is in a position to sustain the business in the initial stages, in which case most businesses make little or no profits.
A person for example with many liabilities and financial responsibilities might not be in a position to handle a certain type of business venture and therefore required to start small according to their capacity as presented by the personal financial statement (Bomhoff, 1994). This will also be helpful in case a person wants to take credit since lending institutions use this information to determine their creditworthiness.
The second statement to be prepared is a balance sheet, which represents the position of a business entity in terms of the value of assets and liabilities. At the start of a business, there’s very little that can be included in this document since it is supposed to reflect the value of fixed and movable assets against the liabilities for a fixed period where liabilities include the money owed to creditors and the investments made within the period.
It reflects the position of the business as at a particular time, unlike the other statements which reflect financial information over some time (Batchelor & Dua, 2003). In this case of a startup, the balance sheet will include the assets acquired at startup and any kind of debt incurred whether from financial institutions or the suppliers.
The next financial statement is a startup cost sheet, which is a record of all requirements preceding the opening of the business. This includes the cost of obtaining stock, the initial rent, which in most cases traders prefer paying up six months in advance rent, and the cost of installing fixtures in the business entity.
This statement is important in the sense that it enables an incoming partner to ascertain the amount of contribution they are expected to give as well as the profit ratio to be shared. At the end of the financial year, this report will also come in handy when taking stock, alongside the sales and assets registers.
Reference list
Batchelor, R., & Dua, P. (2003). Financial forecasting. Cheltenham, UK: Edward Elgar.
Bomhoff, E. (1994). Financial forecasting for business and economics. London: Academic Press.
Garrison, S., Davidson, W., & Garrison, M. (1998). Financial forecasting and planning: A guide for accounting, marketing, and planning managers. New York: Quorum.