Accounting – 4 Things about Financial Statements Every Business Owner Should Know
Knowing how to read and work with numbers in your business financial statements is an important skill. For any business owner, meaningful analysis and interpretation of income statements, balance sheets, and other financial statements is a basis for making smart business decisions. This clearly implies that accounting process doesn’t end at the preparation of the financial statements: it stretches further to analysis and interpretation of every piece of information contained in each financial statement. Here are four things that you should know about financial statements.
Financial statements are score cards
Your business financial statements reveal the financial position, net worth, and other aspects of your business (Also see How Can You Improve Your Business?). Any potential investor will first check your financial statements before making an investment decision. For this reason, you must make sure that all your financial statements are prepared accurately to reveal the exact ‘score’ of your company.
You must analyze the financial statements to use them
Well, your accountant or the virtual accounting professional will prepare the financial statements and forward them to you. How will you know what they say about your business? Of course, analyzing and interpreting the financial statements will help you to find out more about your business money and efficiency. This will require you to calculate financial ratios including liquidity measurement ratios, debt ratios, profitability ratios, and more.
Accounting accuracy dictates the accuracy of your business financial statements
The financial data in your business ledgers and journals is used in the preparation of the financial statements. If this data is accurate, then, you are likely to prepare accurate financial statements. This clearly shows that you should ensure that every entry in your business records is accurate and if there is any error, it should be corrected before the preparation of the financial statements.
If you are not good in accounting, hire a professional
Most entrepreneurs perceive employing an accountant or engaging an accounting firm in Singapore as an extra expense and wastage of resources. For this reason, they may end up preparing inaccurate and late financial statements. This means that they might file tax returns late, a practice which is associated penalties. Besides, inaccurate financial statements will give a wrong financial position of the business (Also see Types of Accounting Errors). Since most business decisions are based on the financial statements data, the chances are that you will make unsound decisions!
Regardless the size or type of your business, financial statements are crucial as they reveal the performance, financial position, and the efficiency of business.