You may be used to thinking of financial statements purely in terms of your annual tax return but for success in business they need to be much more than that. As a business owner/operator, it is essential that you understand your financial position.
Understanding the basics
Financial statements need to be:
- prepared regularly
- accurate and supported by appropriate documentation
- the kind of relevant management information that you can use to evaluate and plan. They would typically contain more information than is ordinarily required for a standard tax return
- easy to understand. You need to be able to read them and understand what they mean. Or you need to be able to rely on someone else in the business or your accountant to explain what they mean
Successful small business operators allocate the time each month to review their financial data fully, so they clearly understand the financial health of their business and can take action if needed.
Your financial statements report on the health of your business. Don’t take them at face value. Analyse them alongside detailed supporting documents to see how the business is performing against your goals and adjust your strategies or your targets for the future, if you need to.