Financial statements are records that communicate the activities and the financial performance of a business. They generally include a balance sheet, an income statement and a cash flow statement. They indicate:
- How much money is made
- How much money is spent
- What the company owns
- What the company owes
- The net value of the business
- Where the money came from and where it went
- The amount of money kept in the company
Companies generally hire an accountant to prepare their financial statements then use the reports as a management tool to affect positive change within their organization. There are several reasons why a business needs financial statements:
- For performance measurement: Financial statements provide a gauge of performance that helps you review the success of your business and communicate your past, present, and future prospects to stakeholders. It allows you to assess management’s stewardship of the company, the viability of the business and is a starting point in forecasting future performance.
- For loan applications/investors: Many lenders will not consider a loan application without up to date financial reports. The information in a financial statement forms the foundation of a bank’s decision whether to fund a venture or a company. A business can use financial statements to persuade an investor to buy into the company, or to attract a venture partner who can put money into a new project.
- For the CRA: In order to file corporate tax returns, Canadian corporations are required to produce financial statements. To avoid penalties, a company needs to have financial statements prepared on a yearly basis.
- For regulating cash flow: Financial statements help a business anticipate borrowing needs. Reviewing your statements can reveal trends your business can use in its cash flow strategies.
- For decision making: Financial statements provide decision-makers within a company with the up-to-date information necessary to make effective choices. Financial reports are used to provide shareholders, partners and/or potential investors with key business metrics.
Start your business off with the correct financial statements and a maintenance plan for keeping them in order. These reports will assist you when measuring the value of your company, applying for a loan, attracting investors and/or selling your business. They are a powerful diagnostic tool you can use to evaluate your firm’s strengths and weaknesses, helping you chart the way forward. Talk to your accountant about the statements that your business needs. They will have the knowledge, experience and expertise to help you with your financial statements.
Need help with your company’s financial statements? Contact Cook and Company Chartered Professional Accountants. Whether you operate a sole proprietorship or a sizable corporation with multiple subsidiaries, Cook and Company uses their experience and expertise to help your business. Contact us for a complimentary consultation.