Even if you can see a pile of cash being generated from your business as a result of success, you are still not safe from making financial statements. You need to show the proof to the creditors, investors, and the tax authorities. Moreover, no matter how much money you receive in your bank account, you will need to see the figures and facts in a reported manner to get the peace of mind that your business is on the correct path. A financial statement is formed following the formats and principles mentioned in GAAP and IFRS. It is created for its users to serve different purposes;
- Managers require the Financial Statements to measure the performance of the company’s current procedures and take important decisions.
- Shareholders use the company’s financial statements to analyze the return they will receive upon the investments they have made in the company. It also helps them in making future investment decisions in the company.
- Prospective Investors need financial statements to make sure that they are investing in the right place. They need an estimate of the return they will be receiving from their investments in the company. Moreover, they need financial statements to analyze the risks associated with the company’s investments.
- Financial Institutions need financial statements to assess the credibility of the company. Whenever a company approaches a financial institution to borrow a loan for its project, it assesses the company’s credibility. The company’s current standing and the risks can be assessed through the financial statement. By lending the loan, financial institutions are technically investing in the company. Therefore, they need their financial statements to assess whether the loan will be beneficial for the institution and whether the company will repay it.
- Suppliers need financial statements to assess the creditworthiness of a business where they are going to supply goods on credit to the company. Suppliers formulate the terms and conditions based on the company’s financial standing as specified in the financial statements.
- Customers use financial statements to make sure that they can rely on a supplier (the company) to provide them the specialized component of their production process regularly. The customers use it to sign the contract where they assess and evaluate the standing of the supplier company.
- The government uses financial statements to check the credibility of the tax declared by the company. It also helps the government keep track of the country’s economic progress by assessing the rate of growth of the companies.
As a whole, it also profits the company in several ways. Some of the major uses of financial statements are listed below.
- Better Decision Making: Financial statements provide you the ease of making a proper decision related to businesses where all the information is reported in front of you. All the main information is used in making the appropriate decision.
- The Tax Time: Through financial statements, you have control over the finances of the company. It helps you to report your profit in return easily and accurately. You do not need to make the efforts of gathering the receipts of expenses to claim the deduction. Everything has been done for you. You will only need to fill out and submit the return.
- The Proof of Your Success: Even if you know or the world knows that your business is flourishing, you need financial statements. Why? Because you need proof of your success. You cannot simply tell people that your business is a success and attract them to it through words only. Facts and figures support your claim more than anything else.
- Catching the Mistakes: Financial statements help you in catching errors, fraud, and mismanagements. It helps you identify the theft that is being done in your company. The department of finance does not always contain faithful people. Financial statements help you with that.
There are several other benefits of a financial statement. However, these are the major ones. Financial statements help a business in every way possible. It holds a business together and helps the business owners in getting the attraction of the public.
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