One of the most interesting questions we get asked are "Should we bother with our financial statements?", or, "Do we need to have financial statements?"
The answer to both those questions is yes. Year after year we get asked by new entrepreneurs and year after year, the answer remains the same. Ask an accountant this question and you’ll see a flash of bewilderment across her face along with the muttering of, "performance measurement" and "of course you need to!".
Let us break it down even further and give you a thorough explanation on why you need financial statements.
There’s a reason the accountant muttered "performance measurement" along with financial statements. Do you want to know if your business was, is, and will be successful? Well, your financial statements will provide that information.
Financial statements provide detailed financial information of your business; from the minutest detail of stationary purchases to high level payments received from clients. Financial statements allow you to have accurate accounting, and accurate accounting decreases the cost businesses have to pay for capital.
Provides Diverse Financial Information
Cash flow is your business’s income statement. It cannot be calculated without your financial statements. Your financial statement gives a thorough list of funds being transferred in and out of the business.
This is just one of the many information points your financial statements will provide. There are many types of financial statements for a multitude of accounting. A one-size-fits-all approach does not work. From cash flow to balance statements to retained earning to understanding the underlying realities of your business, financial statements are necessary for each one.
No matter which industry you are in, you are expected to have financial statements. Whether you are trying to get a loan or attract investors, you are expected to have financial statements. Potentials partners, investors, and lender agencies want to have a look at your financial statement to assess your business.
You are expected to have financial statements.
CRA, also known as Canada Revenue Agency, requires you to have financial statements. You can’t file your corporate tax returns without providing your financial statements. Failing to file your corporate tax returns within three months of the financial year end will bring upon interest on the tax owed. Wait beyond six months and late filing penalties will be charged.
Financial statements are usually prepared on a monthly or quarterly basis. How often you do it depends on the volume and amount of financial transactions your business has. Monthly financial statements ensure that your business has up-to-date statements.