Running a small business is exciting, but when it comes to finances, things can get complicated. Whether you’re applying for a loan, seeking investors, or just want to keep your books in order, reviewed financial statements for small businesses can provide the credibility you need. But what exactly are they, and why do they matter? Let’s break it down in simple terms.
What Are Reviewed Financial Statements?
A reviewed financial statement is a report prepared by a Certified Public Accountant (CPA) who evaluates a company’s financials for accuracy and consistency. While it’s not as in-depth as an audit, it provides more assurance than a compiled financial statement.
Why Are Reviewed Financial Statements Important for Small Businesses?
- Better Credibility with Lenders and Investors
When applying for a loan or attracting investors, a reviewed financial statement increases trust by showing that a CPA has checked your books. - Helps with Business Decision-Making
Accurate financial statements allow business owners to make informed decisions, such as expanding operations, hiring staff, or cutting unnecessary costs. - May Be Required for Certain Contracts
Some vendors, landlords, or financial institutions require reviewed financial statements before entering into agreements. - Saves Money Compared to an Audit
A review costs significantly less than an audit, making it a budget-friendly option for small businesses needing external validation.
How the Financial Statement Review Process Works
A CPA review involves:
- Understanding the Business
The CPA learns about your industry, financial structure, and key transactions. - Analyzing Financial Statements
They check for consistency, identify discrepancies, and ensure reports follow Generally Accepted Accounting Principles (GAAP). - Making Adjustments and Recommendations
If errors or inconsistencies are found, the CPA will recommend adjustments before finalizing the reviewed statement. - Issuing a CPA Review Report
Once completed, the CPA issues a formal review report summarizing their findings and stating whether the financials are fairly presented.
Key Components of Reviewed Financial Statements
1. Balance Sheet
Shows a snapshot of your business’s assets, liabilities, and equity at a specific point in time.
2. Income Statement
Also called a Profit and Loss (P&L) Statement, it details revenues, expenses, and net income over a set period.
3. Cash Flow Statement
Tracks how cash flows in and out of your business, showing liquidity and financial health.
4. CPA Review Report
Includes the CPA’s statement about the accuracy and reliability of the reviewed financial statements.
How Much Does a Reviewed Financial Statement Cost?
The cost varies based on factors such as:
- Business size (larger businesses typically pay more)
- Industry complexity (regulated industries may require extra work)
- Financial record quality (organized records reduce CPA time and cost)
A review is a cost-effective alternative to an audit while still providing credibility.
Best Practices for a Smooth Reviewed Financial Statement
- Keep Your Records Organized
Use accounting software to track transactions and maintain clean books. - Reconcile Accounts Regularly
Ensure bank statements match accounting records to avoid discrepancies. - Work with a Qualified CPA
Choose an experienced CPA who understands your industry and financial needs. - Plan Ahead for Reviews
Schedule reviews in advance to avoid last-minute stress and ensure enough time for corrections.
Common Challenges and How to Overcome Them
1. Incomplete or Inaccurate Records
Solution: Implement strong bookkeeping practices and perform regular financial reviews throughout the year.
2. Managing Tight Deadlines
Solution: Work with a CPA early and provide all necessary documents upfront.
3. Understanding the CPA’s Findings
Solution: Ask questions if you’re unsure about certain recommendations and ensure you fully understand the review report.
