Table of Contents
- Introduction
- Why Financial Statement Preparation Matters
- Strategic Decision-Making
- Operational Efficiency
- Investor and Lender Confidence
- 1. Balance Sheet Preparation: The Process
- Preparing the Assets Section
- 2. Profit and Loss (P&L) Statement Preparation
- 3. Cash Flow Statement Preparation
- The Best Practices to Follow
- How Atidiv Could Guide You with Financial Statement Preparation
- How to Prepare Financial Statements FAQs
The financial statement is an important document to refer back to as a business owner for strategizing and decision-making. Before you begin to understand how to prepare financial statements, it is important to know their three components: balance Sheet, P&L, and cash flow. Each of these components is important to master because they not only help you have a good understanding of your business finances but also help you identify risks early, allocate resources wisely, and plan for sustainable growth.
Introduction
Before learning how to prepare financial statements, it is important to understand the internal workings of the business that are reflected in such statements. The reason for this is that, as a business leader, you may not have to prepare a financial statement yourself, but you should certainly be able to interpret it yourself. With the F&A roles becoming increasingly advisory, you will be expected to collaborate increasingly with seasoned accountants and strategize the financial roadmap for your business.
If you are a small business, you might not have a robust F&A infrastructure because you are more focused on growth at the moment. However, the point is that these two things are mutually exclusive; rather, they are interdependent. In fact, research says that 82% small businesses end up in trouble because of poor cash flow management. In 2025, your business must escape this failure trap and plan your sustainable growth the the marketplace.
Why Financial Statement Preparation Matters
Financial statements are more than compliance documents. They offer a quantified narrative of your business—what you own, what you owe, how much you earn, how efficiently you operate, and how stable your cash position is. Together, these statements serve three critical purposes:
Strategic Decision-Making
Leaders rely on financial statements to establish pricing strategies, assess new investments, plan hiring, and determine funding requirements. However, not all are acquainted with the financial nitty-gritty before they enter the business scene. According to this survey, 42% business owners conceded that they had no prior business knowledge when they began their venture. Thus, if you have the right financial statement knowledge, you could potentially stay two steps ahead of your competitors.
Operational Efficiency
Businesses track margins, turnover ratios, and operating expenses to identify inefficiencies and improve profitability. These metrics are then traced back to operational metrics to understand what works and what does not, and fine-tune the work processes accordingly.
Investor and Lender Confidence
Banks, investors, and partners rely heavily on accurate financial statements to assess risk before they allocate funds. Well-prepared statements improve credibility and increase the chances of securing capital. Untidy books are the first red flag that sticks out.
Let us now take a look at the major components of financial reporting.
Balance Sheet Preparation: The Process
The balance sheet is a snapshot of your company’s financial health at a given time. It follows a simple but powerful formula:
Assets = Liabilities + Equity
Everything your business owns is funded either by debt (liabilities) or by the owners (equity). Preparing a balance sheet involves accurately categorizing and valuing each part. Let us now get into the major checkpoints in the balance sheet preparation process.
Preparing the Assets Section
Financial assets are classified into two categories, current and non-current. The current assets are the ones that could yield ready cash for your perusal, ideally within a year. The non-current assets are the long-term assets that turn into substantial value after a considerable period has elapsed. Let us understand the specifics:
Current Assets:
- Cash and cash equivalents
- Accounts receivable
- Inventory
- Prepaid expenses
These are the checkpoints for the verification of the above:
- Verifying cash balances with bank statements.
- Ageing receivables to identify overdue customer payments.
- Counting inventory or pulling accurate numbers from your ERP system.
- Adjusting prepaid expenses to reflect the consumed portion.
Non-Current Assets:
- Equipment
- Furniture
- Buildings
- Intangible assets
- Long-term investments
You could verify the above by the following means:
- Recording assets at cost.
- Applying depreciation and amortization correctly.
- Removing obsolete assets from the books.
Therefore, at this stage, your F&A team will be cleaning up data before it can be used for preparing the liabilities and the equities section for analysis of net assets.
Profit and Loss (P&L) Statement Preparation
Also known as the income statement, the P&L shows whether your business is making money over a period. It could be calculated on a monthly, quarterly, or annual basis.
Typically, profit and loss statements are prepared by subtracting miscellaneous expenses from the top line. The top line is defined as the ‘entry for revenue’, according to Investopedia, and the deductibles range from COGS (cost of goods sold) to interest expenses.
Since you would be well aware of your revenue sources, let us take a look at the expenses that are categorized into tier-1 and tier-2:
- Tier-1 expenses: This tier comprises material expenses that are required for running the daily workflow, including goods costs, rental charges, or depreciation. The table under which these expenses are calculated ends with the estimation of operating profits, which is the interim balance (adjusted with the interim revenue).
- Tier-2 expenses: This tier includes non-regular expenses (including direct taxes) and income, such as property-related costs and one-time expenses, along with any exceptional income. This final section completes the company’s income statement and shows the true overall result for the period.
In 2025, taking account of these expenses makes for an accurate estimation of the profit and loss statement for your business.
Cash Flow Statement Preparation
This is the third and probably the most important section of understanding how to prepare financial statements. If the P&L tells you if your business is profitable in the true sense, the cash flow statement answers the important question, “Can your business survive and grow?”
More than 82% of small businesses fail due to cash-flow mismanagement, which makes this statement essential for the constant reallocation of resources
Cash flow is divided into three sections:
The cash flow statement tracks the actual movement of money in and out of your business. It also sheds light on whether your company can meet its real-time financial obligations. Unlike profit figures, cash flow reflects your true liquidity position and ability to sustain daily operations. It divides the workflow into three activities:
- Operating activities: customer collections, vendor payments, and payroll management
- Investing activities: purchase or sale of equipment and long-term assets
- Financing activities: loans (received or repaid) and equity funding
Together, these three categories give you a complete picture of how cash is generated, spent, and financed. Therefore, the cash flow statement is one of the most powerful tools for managing liquidity and planning sustainable growth for your business in 2025.
The Best Practices to Follow
Effective cash flow management ensures your business holds enough liquidity to avoid cash-crunch scares and stays growth-ready. Here are the standard best practices that you could follow:
- Track cash flow daily so that payment delays and liquidity shocks can be avoided
- Reconcile bank statements to update financial health regularly
- Follow up on overdue receivables promptly to improve inflows
- Control operating expenses to protect profit margins
- Maintain an emergency cash reserve so that unexpected costs can be covered
Furthermore, the use of automation tools reduces errors and improves visibility. Consistent cash flow discipline is the foundation of financial stability and long-term business success.
How Atidiv Could Guide You with Financial Statement Preparation
Accurate financial statements demand more than just number-crunching—they require structured processes, compliance precision, and financial insight. Atidiv is the right fit for this because it blends deep finance and accounting expertise acquired over 16+ years of industry experience, flaunting a track record of 100% accuracy in service delivery.
These are the clear advantages of choosing Atidiv:
- End-to-end financial statement preparation with multi-level quality checks
- Automation-led reconciliation for faster and error-free reporting
- GAAP- and IFRS-compliant financial reporting standards
- Real-time dashboards for balance sheet, P&L, and cash flow tracking
- Scalable F&A support for startups, SMEs, and enterprises
- Secure data handling with enterprise-grade controls
If you want reliable financial statements without the operational burden, Atidiv’s finance and accounting experts are ready to streamline your reporting with precision and speed. Get on a free consultation call with us today!
How to Prepare Financial Statements FAQs
1. What are the three main financial statements every business must prepare?
The three primary financial statements are the balance sheet, profit & loss (P&L) statement, and cash flow statement. Together, they show your company’s financial health as accurately as possible for investment-seeking and staying audit-ready.
2. How often should financial statements be prepared in 2025?
Ideally, businesses should prepare financial statements
- monthly for internal tracking,
- quarterly for performance reviews, and
- annually for compliance, taxation, and investor reporting.
Outsourcing to reliable outsourcing brands like Atidiv ensures that all these functions are performed with accuracy and precision.
3. What is the first step in preparing financial statements?
The first step is accurate bookkeeping and bank reconciliation. All transactions must be properly recorded and verified before any statement is generated. That lays the ground for all the subsequent processes that depend on the accuracy of the data they work with.