As a business owner or a potential business owner you will hear your accountants talk of financial statements and the importance of them being accurate and transparent. But what are financial statements and just why are they so important?
The team here at GW&Co Accountants have put together a financial statement 101 to help you understand what they are and why they are so important for your business.
First of all, what exactly is a financial statement?
A financial statement for a business is an official report that provides an overview of the financial performance and position of the business. This document is typically prepared on a periodic basis, such as quarterly or annually, and is used to help management and investors understand the financial health of the business.
What’s more, financial statements provide a detailed look at financial health and performance of the business, enabling business owners and investors to make informed decisions. Without accurate financial statements, it would be impossible to accurately assess the financial position of the business.
But why is it essential for financial statements to be so accurate?
In a nutshell, having accurate financial statements is essential for making sound business decisions as they provide a clear insight into the financial health of the business. An example of needing such an insight into the finances of a business would be if a business is considering investing in a new product line or expanding into a new market, its financial statements can provide insight into whether the investment is a good idea and whether the business can afford to expand.
Similarly, if a business is looking to acquire another business, the financial statements can provide information about its ability to finance the deal. Without accurate financial statements, it would be impossible to make informed decisions about the future of the business.
Simply put, you cannot expand your business or even a product line without first knowing the risks and financial implications and this is where your financial statement comes in.
Similarly, having up to date and accurate financial statements are also essential for obtaining financing. When applying for a loan, investors and lenders will look at the business’ financial statements to determine whether it is a good investment. If the financial statements do not accurately portray the company’s financial health and performance, it can be difficult to secure financing for your future business development plans.
Moreover, and perhaps the most important factor, having accurate financial statements are also important for complying with legal and regulatory requirements. For example, registered companies in the UK must file financial statements with the government through Companies House . These financial statements must accurately reflect the company’s financial performance in order to comply with applicable laws and avoid any fines or pitfalls.
Finally, having yearly accurate financial statements are essential for accurately assessing the value of a business. If you are looking to sell your business in the future, potential buyers will look at the financial statements to determine the current value of the business and how much they are willing to pay for it.
Without accurate financial statements, it would be impossible to accurately assess the value of the business and therefore you may be sabotaging your future plans if you are unable to sell your business when required and your hard work of building it will not pay off.
As you can see, having and filing clear, transparent, and accurate financial statements throughout the life of your business is essential. Financial statements are used in every aspect of the business from the day to day to the big decisions and plans.
If you would like to get to grips with the financial health of your business and ensure you have accurate statements, please do not hesitate to get in touch with the team here at GW&Co. We are experienced, plain talking accountants who work with you to get the best out of your business.
