Can you imagine watching an NFL or NBA game with no scoreboard? Of course not. Who would know what team is winning or losing? Similarly, what would a business be like having no scorecard to know where it stands financially? It would be difficult, even dangerous; like walking in the dark.
Every business, large and small, needs scorecards–Financial Statements. Those three essential scorecards are: Balance Sheet, Income Statement, and Cash Flow Statement. In order to be useful, these statements need to be completed promptly and accurately.
What Is Presented in Each Financial Statement?
The Balance Sheet displays the elements and relative balance of Assets versus Liabilities plus Owner’s Equity. It is essentially a statement of what a business owns versus what it owes.
The Income Statement provides the detail of revenues, expenses and net income. It is essentially the measure of “is my business making money?”
The Cash Flow Statement measures the company’s generation of cash with which to pay its debts. Essentially, showing whether the business is liquid enough to pay its way.
These three statements, prepared accurately and reviewed at the end of each business cycle, provide the essential data to effectively analyze and manage the financial health and well-being of an organization.
How Are Financial Statements Used?
- Owners and business executives use the statements to make important business decisions in the on-going management of the company.
- Shareholders use the statements to assess the value and return of their investment in the organization.
- Potential investors use the statements to evaluate the risk of possible investments.
- Banks and other financial institutions use the statements to determine the value of loans and to protect invested funds.
- Suppliers use the statements to assess credit worthiness and to ensure they will be paid for purchases.
- Governments require Financial Statements to process tax and other payments and to verify the continuing operation of a company.
Why is it Important to Have Accurate Financial Statements?
First of all, because so many people and other organizations rely on having the statement information and to having it reliably presented. Second, because Financial Statements are so very vital to making critical decisions about the business. (Walking in the dark, as referenced before, can be dangerous.)
In addition, Financial Statements:
- Help ensure on-time payment of obligations as well as timely receipt of funds.
- Make the organization better prepared for tax time.
- Provide a measure and proof of your business success for essential outsiders.
- Help owners and executives catch and correct potentially costly mistakes.
Get Expert Professional Assistance
For most organizations, “doing it alone” financially may not be wise. When you seek professional financial assistance, contact Busch CPA, serving the Chicagoland area. Busch CPA is experienced with entrepreneurs and provides the skill, accuracy and service that you deserve. We are a full-service bookkeeping, payroll and tax organization, ready to help you drive business growth.