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Why do businesses prepare financial statements?

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Why do businesses prepare financial statements?
posted Oct 4, 2017 by Deepak Jangid

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If you are wondering whether or not you really need to prepare financial statements when you already know your business is profitable, the answer is definitely yes. You may be convinced that your business is doing fine, but you will need proof for investors, creditors, shareholders, government agencies, and essentially you will also need it for your own peace of mind. Feeling successful is great, but seeing the facts and figures in front of you that prove your success is empowering!

Better Decision Making
Financial statements are vital for making crucial business decisions. You should be reviewing more than just your bank statements whenever you are considering whether or not you can afford to invest money back into your business. Financial statements will give you a clear and accurate visual of how your business is currently performing, so you have a means of monitoring its progress and identifying opportunities for growth.

More On-time Payments
Financial reports like accounts receivables are essential for ensuring customers pay on time and account payable reports will make sure that your vendors are paid on time. It will also give you a reference point to predict your future cash flow.

Prepared for Tax Time
Regularly updated financial statements will keep your information neatly organized for tax time. You don’t want to realize that all you have is a shoebox full of receipts on April 14th. Regular financial reporting means your accounting software is also being updated regularly.

Provide Proof of Your Success
Financial statements will act as a historical record of the overall success of a business, if there is ever a decision to sell the business or obtain new investors. New clients and suppliers may also request financial statements while trying to determine if they should conduct business with your company.

Catch Costly Mistakes
A set schedule for reviewing your financial statements will help catch mistakes earlier. They can also help an owner detect theft, fraud, or illegal activities within their business. You can hire a professional accountant or a bookkeeper, or an entire finance department, but that doesn’t mean you still don’t need to be involved. As much as you want to trust the person who is handling your finances, you need to be watchful for any discrepancies.

answer Oct 5, 2017 by Anurag Kashyap
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