How are you doing financially? This is one of the most basic questions you can ask yourself, but it’s also one of the hardest to answer truthfully. If you don’t know where your business stands financially, then how can you make intelligent decisions? That’s why you need to know where your business stands financially, and if you don’t, here’s why you should check your financial statements.
As a company owner, it’s crucial that you have a clear understanding of your company’s financial health. The most common financial statements for a business are balance sheets and income statements, but knowing how these work and what they mean is important if you want to fully understand your company’s financial state. A balance sheet explains where a company stands financially as of a given date—and can be used as a tool for planning ahead for growth or anticipating potential problems that could come up in the future.
Every company has an annual report, and it’s probably worth your time to check it out. The report is essentially a way for shareholders, employees, and customers (in other words, all of us) to gauge how our business did over the course of a year.
It’s made up of three key financial statements:
Typically, it’s a good idea to read your company’s annual report at least once a year—but if you aren’t looking over these financial statements regularly, there are signs you should pay attention to. Annual reports from public companies can be found on their websites and offer a comprehensive look at a company’s growth, business strategies, and performance.
Just as your personal finances should be audited by a professional accountant, your business’s finances should also be examined periodically. The larger your business becomes, and/or if you’re involved in a lot of transactions with other companies, you may want to consider hiring an outside auditor.