Financial statement and analysis is one of the foundations of a business. You probably already know it is essential, simply because it is usually a legal requirement in some countries. However, its significance in your business is much more than this as it has untapped potential that can lead you to success. Let’s see what that is in this article.
What is a Financial Statement and Analysis?
Financial statement and analysis, or financial reporting, are the practices that give a business’s stakeholders a detailed description of the current financial status of the company. It includes the business’s revenues, profits, capital, expenses, and cash flow. The formal records of these finances provide you with in-depth insights regarding your business.
All information about these financial key performance indicators is crucial because they tell you about the health of your business. Although the insight they offer is not much when it comes to management or company culture, they are nevertheless vital. Stakeholders would often use financial statements to make important decisions about the company.
Significance of Financial Statement and Analysis for Small Business
Financial statements are particularly important for startups and small businesses. These businesses rely heavily on financial reporting for evaluating and taking a suitable economic decision. All stakeholders would use the financial statements, comparing the business’s past and current performance, to predict the company’s future performance and growth.
Let’s look deeper into the benefits of financial statement and analysis.
Better Management of Debt
Debt, as you must know already, is one of the things that can halt your business’s growth and progress. Financial reporting can help with managing your debt better by tracking your current assets divided your current liabilities. With that, you can estimate your liquidity and use it for handling your debts.
Real-Time Insights and Tracking
Many financial statement software can track your finances and provide real-time insights. Thanks to that, your business can make informed decisions quickly and accurately. As a result, you can avoid possible roadblocks. At the same time, it helps your business maintain its financial fluidity.
Improve Your Financial Efficiency and Compliance
Thanks to the use of financial statements, you can acquire vital and accurate information about your company. With this, you can have a higher degree of analytical reporting. It means your small business can benefit from improved financial efficiency. This way, you can also make sure that you are completely compliant, which helps your company stay active.
Taking Decisions and Formulating Plans
It is the management that formulates policies and plans and makes decisions for the sake of the company. For that reason, they always need to evaluate how their efforts and actions perform, figuring out whether they are effective or not. Financial statement and analysis help you with this through the insights they provide.
Helps Extend Your Credit
Thanks to the creditors, you can have a loan capital to start your business. They also support or halt the growth and progress of your startup by choosing to extend your loan or demand the interest rates for it. The information provided by your financial statements and analysis help them decide about this.
For Informed Investment Decision-Making
Your business may still be small, but in the future, you may have prospective investors who can help you grow. They have the surplus capital to invest in your company, but that depends on certain factors. One of those factors is the health of your business, a piece of information they can obtain from financial statements and analysis.
As you can see, a financial statement and analysis is essential even with small businesses. It helps you manage your cash flow, profits, capital, debts, and other finances, ensuring your business stays afloat. With this, you can keep track of all your revenues and expenses for managing your business in a smarter way.
Now, if you’re looking into getting help with your business, look no further, for we are here. Schedule a free 30-minute consultation with us now.