Financial statements help you understand how well your business is doing and what factors contribute to its growth. According to various articles and an Alabama HOA accountant, the following three main reports work together.
Analyzing these statements, you make well-informed decisions, track timely progress, identify risks, and set realistic goals. Let’s take a look at these financial statements:-
- The Balance Sheet
Having a well-maintained balance sheet helps you understand where your business has been at different times. This further gives you insights into your assets, investments, liabilities, and unpaid bills.
- The Income Statement
This report focuses on your income and expenses over a specific period. It tells you how much sales you are bringing and how much money you spend– rent, groceries, bills, etc. The bottom line of this statement shows your profit or loss, which is another crucial indicator of your business’s overall performance.
- The Cash Flow Statement
This report tracks your business’s in-and-out cash flow.
It helps you understand how well you are managing your cash flow. So if you spend on unnecessary things, you will receive a warning that you do not have enough money to take care of your day-to-day activities.
What is the importance of the financial statements?
- To Investors
In the case of funding, investors heavily rely on financial statements. Strong statements with healthy profits demonstrate your ability to manage finances effectively. Thus, making them more likely to invest in your business.
- To Creditors
Suppliers who offer you products or services on credit will also analyze your financial statements. Despite having low debt levels, if you have a strong statement, you can assure them that you will be able to repay debts on time. This potentially leads to better credit terms or discounts.
- To Shareholders
In the case of incorporated businesses, the shareholders track the business performance and investment value using financial statements. Consistent profitability with healthy financial metrics assures them that their investment is growing.
- To Management
As a business owner, analyzing your financial statements empowers you to make informed decisions. Is your marketing budget too high? Are there areas where you can cut costs? Financial statements reveal these areas, allowing you to optimize your spending and maximize profits.
- To Users
This category includes anyone who interacts with your business financially, like customers or potential partners. Strong financial statements build credibility and thus attract more customers or partnerships.
To get help, make sure you speak to an accountant today!