I suppose you are thinking sheesh that is a boring article name, but what if I told you it could be the most exciting article you have read all year? Well, surprise! It is the most exciting article you will read to date this year. We are going to discuss how you can use financial statements to keep more of your business’s hard earned money.
You and your business have worked hard to earn the income that is flowing in let me show you how you can keep it.
Primary Financial Statements
By preparing three key financial statements: Balance Sheet, Income Statement, and Statement of Cash Flows, you can view a complete snapshot of your business’s health. These three statements show you all of your assets (everything your business owns), all of your liabilities (everything your business owes), and what is left over after subtracting liabilities from assets (Owners’ equity).
These statements are decision-making tools that provide real-time analysis, that aid in forecasting, and benchmarking. They also allow you to identify financial patterns and create a budget. Accurate financials will enable you to have accurate manpower forecasting, tell you if you can afford to purchase that new equipment or vehicle that you have been wanting to invest in. The financials will also tell you where all of your money is going and allowing you to budget more accurately and save some of those hard-earned dollars. These savings could be the difference between buying that equipment or vehicle in cash vs. financing it.
Accurate financial statements are also necessary because you will often need an accurate current Balance sheet to apply for any type of business credit. It is required for small business loans, business credit cards, and some vendors will require it to extend credit terms.
Financial statements also tell the story of how well you are collecting payments from clients. Your bookkeeper or accountant can easily generate an aging receivables report. This financial report could enable you to increase your revenue quickly once you are aware of the customers you need to collect from.
A Tax Compliance Must
Financial statements are also needed for tax compliance. They are used to calculate your quarterly state and federal tax obligations as well as being needed to file your annual tax returns. In addition, if you are a business that is required to collect sales tax there is a financial report that can be generated to show you how much you owe to the respective state. You must also retain financial statements for 7 years in case you are ever in a situation where you get audited.