Any business no matter how big or small it is will produce a number of financial statements every year. These record the company’s assets, liabilities, expenses, revenues, shareholder equity, and cash flow.
These are often done by outsourced bookkeeping services in Malaysia, but these types of documents usually are forgotten by small business owners, simply because these are not needed by the IRS. Instead, they would just focus on the normal operations of their business.
But despite the fact that it is not needed come tax time, setting aside these numbers could cripple the business. All of the successful companies out there would always rely on their financial statements and they create short and long-term strategies to make sure that their company’s figures remain positive.
An Insight to the Future
The company’s balance sheets are mainly used as a means to help you gain an understanding and, therefore, provide insight into the business’ financial status. These documents would outline the company’s assets and liabilities, as well as shareholder equity- bringing you a more holistic perspective of the company’s overall financial health- more so outlining what you already own versus what is owed to you.
A lot of business owners would just rely on the information that is stipulated in their income sheets, but these documents just provide you with a little bit of data that only tells you one-half of the overall picture.
Income statements would just tell you the income that the company has gained, as well as the expenses that have been paid in a given time. It doesn’t, however, talk about the money that you are owed via accounts payable. Company owners that would rely only on the income statement would surely experience disastrous consequences, and thus, crippling cash flow.
Although income statements can provide some useful information; only the balance sheet can give the overall financial picture.
A Clearer Picture on the Financial Status of the Company
Accurate and timely balance sheet reports can help keep the CEO updated with their company’s financials. Over time, these documents would tell if the current company leader is bringing in results or they are just bringing a lot of problems.
For instance, the balance sheet entries for both accounts receivable and accounts payable data over an extended period of time would exhibit the company’s habits regarding the collection of payment from customers, as well as the reliability and ability in paying creditors as agreed upon in the transaction.
Whenever the company would require additional funding, they will turn to potential investors and woo them in the hopes of getting the money that is needed by the business.
The thing is, investors are pretty much gambling in the sense that if they put money in a company- results will vary. There are some that would prosper and there are some that would still crash and burn.
In any case, providing them with accurate financial statements can give them some semblance of how efficient the company is and putting a little bit of their money in it would provide the necessary backing to help you move forward (with them as well).