A financial statement is an important company document that contains important data such as assets, liabilities, expenses, net worth, income, and changes in equity and cash flow. With this data, related parties can see the company’s condition and progress over a certain period.
As an aspiring entrepreneur, you might be familiar with this term but not understand the crucial aspect of why this is important. To help you understand better the ultimate purposes of creating a company’s financial statement, we have listed some of the must-know reasons below!
1. Be Informed About the Current Number of Assets
The company’s finances are always changing, along with the sales dynamics in the field. Therefore, financial statements can be used as concrete evidence about the latest assets owned by a company.
2. Debt Evaluation
Almost all businesses have productive debt that is used for development. By having a good financial statement, you will be able to see how much the company’s current debt is. You can also do long-term strategy and planning after looking at the current amount of debt.
3. To Check for Profit Gain
The profit or loss of the company in a certain period of time can also be seen from the financial statement generated. The final balance, which shows whether the company gains minus or surplus, will be the evaluation and assessment of policymakers in the company. Business is not only approximated but concretely shown through evidence of the company’s financial statements.
4. Long-Term Policy Determers
At the end of the day, business is all about gaining profit or occurring loss. Through existing financial statements, it is much easier to check whether the company has experienced good or bad development. Based on this, stakeholders can better understand what to do for the company’s long and short-term policy.
Aside from the four ultimate purposes that we mentioned above, there are some other additional benefits that a business entity can get by having a proper financial statement:
- Helping to assess the company’s financial condition in a certain period.
- As a consideration to make important company decisions, especially those related to the company’s finances or survival.
- Creating new things for the company to improve the quality of the company’s performance.
- To achieve a higher credibility reputation for the company.
- A material for assessing the ability of business owners to fulfill all their obligations.
Having a clear financial statement with all the numbers will show the company how well or poorly it’s doing financially. Unfortunately, many small startup owners and aspiring entrepreneurs don’t bother with this. They failed to understand that no matter how small your business is, it’s essential to keep track of your money in a way that’s clear and responsible.
For any aspiring entrepreneur or startup business owner, this is something that should not be missed. Having strong and stable finances is the ultimate pinnacle of a company’s success. When you first launch a new business, it is vital to develop a sound financial strategy to overcome the challenges that you might have to face and achieve sustainable growth in the long run.
To tackle these challenges with confidence, managing your financial statement effectively is essential. One effective strategy to help you navigate this issue is to hire a professional for all of the accounting-related issues instead of fully doing it in-house. If you are a business owner based in Singapore, consider hiring accounting services in Singapore to help you out.
Who Will Need the Financial Statement?
As previously mentioned, correct and accurate financial statements for a business entity will provide many benefits. Thus, ensuring your business has one is crucial. An accurate financial statement is not only beneficial for you as the owner, but it also encompasses several parties who take part in the business.
1. Company Management
Company management is the first to benefit from proper financial reports. They can use this information to make better decisions regarding business strategy, resource allocation, and operational improvements. The right financial statement helps them see the company’s overall financial performance.
2. Investors
Investors will need to rely on accurate financial statements to assess the company’s performance and financial health. This information helps them decide whether to keep or sell their investments.
3. Creditors
Lenders and creditors such as banks or other financial companies need financial statements to assess a company’s ability to pay debts. The right financial statement will influence the level of creditors’ confidence in the company.
4. Regulatory Authorities
Governments and regulatory agencies will need to review financial statements as a way to ensure that companies comply with applicable regulations and taxes. Accurate reports can help prevent legal violations and financial fraud.
Do keep in mind that precise and accurate financial statements will provide broad benefits to various parties involved with business entities. Financial statements can help to create transparency, trust, and stability in the business environment – thus, ensuring your business has one is a must.
