Give your small business an edge with a Compiled Financial Statement

If you’re a small business owner, you know how difficult it can be to keep up with financials. You also probably know that little knot in the stomach entrepreneurs get when they think about it.

The good news is that completing a compilation for your business can remove difficulty and untie knots.

So, let’s take a minute to discuss compilations and whether one is right for your small business.

Let’s go!

What is a compilation?

Last week’s post touched briefly on this topic, but it’s worth talking about again. A compilation is when a business hires a CPA and provides them with financial information. The CPA analyzes it and creates a coherent report that organizes information for internal use.

The report makes sense of all the information provided, but it does not confirm the accuracy of the financial information provided. So, if mistakes are in the financials, they won’t be sussed out by a compilation.

So, what’s the point? Good question. Let’s look into the answer now.

Benefits of a compilation

One of the greatest benefits of a compilation is organization. If a business feels its transactions and overall financials are accurate, having them presented cohesively allows management to use that information for strategic financial planning.

Improved financial transparency can increase stakeholders’ confidence and allow business owners to make informed decisions regarding budgets and resource allocation.

It’s a bit like coming out of a thick fog that hasn’t stopped a business from moving forward but has slowed it down due to an inability to see the big picture.

Compilations can also be faster and more cost-effective than reviews or audits.

Time and Cost

Like anything else in business, time and cost are related to complexity. For most small businesses, though, the process is fairly simple and can be completed in a relatively short time frame.

Of course, the longer the compilation takes, the more it will cost. The CPA’s experience and business location may also factor into the price.

However, costs are generally lower than a review, regardless of the situation. That’s the good news.

The flip side is that compilations have one major shortcoming that must be discussed.

What a compilation can’t do

Earlier it was mentioned that compilations don’t account for mistakes in financials. That’s the biggest issue with them.

There is no assurance the CPA can provide that the information is correct.

They can only stipulate the information has followed Generally Accepted Accounting Principles (GAAP) or other basis of accounting.

So, a business may not have much success using the information to get a loan or woo new investors.

The Bottom Line

Compilations are valuable because they provide financial clarity, credibility, and professionalism to a business. They may even help meet regulatory requirements. But they don’t provide the same level of assurance as a review. So, if your business is looking for investors or a bank loan, tune in next week when we go over reviews in depth.