Any business is run on finance, without finance it is surely going to crash. And the way to keep your business afloat is with the help of the financial statements.
The financial statement of your company typically consists of your balance sheets, cash flow statements and your income statements. Careful study of these three facets of financial statements helps one take futuristic decision. But not every business owner is aware of what precisely is financial statement.
So here’s a list of 8 basic things that you should know about your financial statements.
1. Your financial statements are your scorecard. With the help of this scorecard you are likely to get investments in your venture as also you can acquire loans for your business only after a thorough analysis of your financial statements.
2. Your financial statement consists of balance sheet which shows how healthy your business is, income statement shows the money that comes into your business and cash flow statement shows the inflow and the outflow of cash. These 3 reports are your indicators or financial memory of your business. Having clear and crisp statements will ensure that your business prospers quickly and efficiently.
3. Financial statements are real time events that are noted down in your company records. What you have purchased, what assets are liquidated, what is the salary of the employee or what benefits are given to the employees, etc.
4. Financial statements are often jargon heavy and as a business owner it would be advisable to learn the key terms often used in these statements.
5. Financial statements won’t speak for the external factors that impact your business. For instance, the market trends, the competition, the quality of workers etc. So while studying the financial statement analysis one is supposed to keep these external factors in mind.
6. Financial statements will help a business in decision making. It will help the business owner analyse what works for his business and what doesn’t work for his business; and accordingly the owner can take an action that will turn the tides in his favour.
7. Your taxes are filed basis the financial statements but your financial statements may or may not be similar to the tax returns. You can incur profits on your tax returns even when your financial statements show loses and vice versa.
8. Financial statements are very important while performing a company audit. The information on financial statement helps make an accurate financial report.
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