Why Financial Statements Are Necessary For Your Business

Photo Credit: Igor Marusichenko/Shutterstock.com

Photo Credit: Igor Marusichenko/Shutterstock.com

Financial statements are created to present an accurate picture of the financial condition of your business including the results of your business. The key financial statements are the balance sheet, income statement, and the statement of cash flows. While each of the financial statements are important, the most important statement will depend on your needs, and our expert staff can structure these statements to suit your needs. Here is a closer look at each statement:

Balance Sheet
The balance sheet may be ranked third by some users since it does not report operational results, and some of the data may be historical in nature. However, the balance sheet takes on more importance when used in conjunction with the income statement, because the balance sheet will show the amount of investment required to support the profits. A business owner should always understand the return on their investment. A CPA can use this information to discuss how a business ranks among similar businesses. This statement is one that lenders will want to see.

Income Statement
The majority of business owners will likely consider the income statement to be the most important of the three because it demonstrates the ability of the business to generate a profit. The data provided on the income statement is usually in current dollars which makes it an accurate accounting of your income. This statement does not reveal the assets and liabilities required to generate a profit or that may contribute to a loss. The income statement does not reflect the cash flows either generated or needed by the business. Thus, this statement when used without any other significant statement will be an incomplete picture.

Statements of Cash Flow
Some business owners may consider this statement as being the most important because it focuses solely on positive and negative cash flows. This statement is particularly important for businesses operating on the accrual basis of accounting. This statement presents a more accurate picture of cash flows than the income statement. Understanding cash flows will enable a business to make adjustments in operations or borrow money to support operations.

Financial statements are important tools to help management make sound decisions. Lenders, partners, potential buyers and other interested parties will get a good picture of your business. Our experienced staff will work closely with your key personnel to develop accurate, timely and useful financial statements. The statements that our staff prepares are designed to help a business maximize profit and avoid the pitfalls of losses and cash shortages. We also will determine if the rate of return on investment is adequate or if other actions should be taken.

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