What Financial Statements Cover — and Why They Matter
Financial statements are the formal record of your business's financial position and performance. They are the language banks speak when evaluating a loan application, the evidence investors review before committing capital, and the management tool that separates businesses running on gut feel from those making data-driven decisions. When prepared correctly by a CPA, they carry credibility that self-prepared reports cannot.
ProAxis CPA prepares complete financial statement packages for NJ businesses, including the four core statements:
Balance Sheet (Statement of Financial Position)
The balance sheet is a point-in-time snapshot of what your business owns (assets), what it owes (liabilities), and what remains for the owners (equity). Lenders pay close attention to your balance sheet when assessing creditworthiness — particularly your current ratio, debt-to-equity ratio, and the quality of your assets. A well-structured balance sheet is foundational to any financing request.
Income Statement (Profit & Loss Statement)
The income statement shows revenue, cost of goods sold, gross profit, operating expenses, and net income over a defined period. It answers the fundamental question: did your business make money? Lenders use income statements to calculate debt service coverage ratios. Management uses them to monitor margin trends, identify cost pressures, and evaluate performance against budget.
Cash Flow Statement
A business can be profitable on paper and still run out of cash. The cash flow statement explains the difference between net income and actual cash movement by showing cash flows from operations, investing activities, and financing activities. It is essential for understanding your business's true liquidity — and it is one of the most underutilized statements in small business accounting.
Statement of Changes in Equity
This statement tracks changes in owners' equity over the period — including net income, owner distributions, capital contributions, and retained earnings. It is particularly important for multi-owner businesses and for any business where owners take distributions, ensuring that equity is properly tracked and reconciled.
Compiled vs. Reviewed vs. Audited Financial Statements
Not all financial statements are created equal — and the level of CPA involvement determines how much assurance they carry. Understanding the difference helps you request the right level for your purpose and avoid paying for more than you need.
Compiled Financial Statements
The CPA prepares the statements using information provided by management and presents them in accordance with the applicable financial reporting framework. The CPA does not independently verify the information or provide any assurance. Compiled statements are accepted by most NJ banks for SBA and conventional small business loans, commercial real estate lenders, and many private investors. This is the level most small and mid-sized NJ businesses need.
Reviewed Financial Statements
The CPA performs limited analytical procedures and inquiry — comparing financial data to expectations and asking questions about significant items. The CPA provides limited assurance that no material modifications are needed. Reviewed statements are more credible than compiled statements and are sometimes required for larger bank credit facilities, franchise financing, or more sophisticated private investors.
Audited Financial Statements
The CPA performs extensive testing — examining supporting documents, verifying account balances, confirming receivables and payables, and assessing internal controls. The CPA provides positive assurance that the financials are presented fairly. Audits are required for businesses with institutional investors, certain government contracts, non-profits receiving significant grants, and public companies. They are significantly more expensive than compiled or reviewed statements.
When NJ Businesses Need CPA-Prepared Financial Statements
Several common business situations require — or are significantly strengthened by — CPA-prepared financial statements:
- ✓ Bank loan applications — NJ commercial lenders require CPA-prepared financial statements as part of the underwriting package for most business loans over $150,000
- ✓ SBA loan applications — SBA 7(a) and 504 loan programs require business financial statements; lenders conducting SBA underwriting routinely request CPA-prepared statements
- ✓ Commercial lease applications — many NJ commercial landlords request financial statements before signing a multi-year lease, particularly for larger spaces
- ✓ Private investor or partner reporting — outside investors and business partners expect formal financial reporting at regular intervals
- ✓ Business sale or acquisition — buyers expect CPA-prepared historical financials as part of due diligence; clean statements support higher valuations
- ✓ Internal management reporting — even without an external requirement, monthly CPA-reviewed financials are the most reliable tool for managing your business
For clients on our monthly bookkeeping service, financial statement preparation is a natural extension of work already in progress. Because your books are current, reconciled, and CPA-reviewed every month, producing a formal financial statement package for any specific purpose is fast and accurate — not a scramble.
Ready to get started?
Schedule a free 30-minute consultation with our team.
Frequently Asked Questions
What is the difference between compiled, reviewed, and audited financial statements?
Compiled statements are prepared by a CPA from management-provided data with no verification — they present information in proper form but provide no assurance. Reviewed statements involve limited analytical procedures and inquiries, providing limited (negative) assurance. Audited statements involve comprehensive testing and verification, providing the highest level of assurance. Most NJ small businesses need compiled statements for lending purposes. Reviewed statements may be required for larger credit facilities. Audited statements are typically required only for institutional investors, certain contracts, or non-profits.
Does my NJ business need audited financial statements?
Probably not. The vast majority of NJ small and mid-sized businesses — including those seeking bank financing, commercial leases, or investor reporting — are well-served by compiled financial statements. Audited financials are required in specific circumstances: if your business has private equity or venture capital investors, if you have a government contract that requires it, if you are a non-profit subject to single audit requirements, or if your company is preparing for a public offering. We will give you a clear assessment during your consultation and will never recommend a higher level of service than your situation requires.
How long does it take to prepare financial statements?
For clients on our bookkeeping service, financial statement preparation typically takes five to ten business days because your books are already current and reconciled. For clients who come to us specifically for statement preparation, the timeline depends on the current state of your accounting records. If catch-up bookkeeping is required first, that adds time. We will give you a realistic timeline estimate after reviewing your books during the onboarding process. If you have a lender deadline, let us know — we will prioritize accordingly.
What do you need from me to prepare financial statements?
For existing bookkeeping clients, we already have everything needed. For new clients, we will need access to your accounting software (or export files), bank and credit card statements for the period, any loan statements or lease agreements that affect your balance sheet, a fixed asset list with purchase dates and costs, and information about any significant transactions during the period. We provide a detailed information request checklist and work through it with you step by step. The process is designed to minimize demands on your time.