Posted by D&V Philippines
Oct 14, 2015
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If you are managing a company or even a team within the company, you probably already know that overseeing a company’s operations without a basic understanding of financial accounting is not a wise strategy.
When it comes to how companies work, everything eventually leads to proper financial management as it will help you with resource allocation, daily expenses and company planning. With this, you should be well-versed in what financial statements are, why it is needed and how you can optimize it.
Read: How to Analyze your Financial Statements the Right Way
What is a Financial Statement?
A financial statement is a formal record of your financial activities. It is a document from your financial service provider which clearly states your assets, liabilities, revenues and the overall financial position of your company.
Indeed, financial statements are very important. But if you are still unconvinced, here are more ways to make better sense of the role of a financial statement in relation to your operations:
Benefits of an Updated Company Financial Statement
Knowing your Net Worth and your Financial Capability
Your financial statement’s balance sheet shows the total value of your assets, liabilities and capital.
Thus, you can use the balance sheet to determine your net worth by the total value of assets minus the total liabilities so you can gauge how well your business is doing financially. If you think you still need to improve it, your balance sheet can also point out where you need to start. This is one important reason why you should keep a close eye on your financial statements.
Ability to Control Your Revenue
You can keep tabs on your cashflow through a cashflow forecast. In that regard, you can also use these financial statements to have a better idea of how to increase the amount of money coming into your business.
This is where you can make good use of particular strategies to improve your revenues, especially if you think you are not meeting your breakeven point.
Better Understanding of Cashflow
Aside from helping you monitor your cashflow, your cashflow forecast also provides a bigger picture when it comes to the overall status of your current funds. To that end, you can use these financial statements to get a better grasp of how much money is being spent on business expenses and how much money your business is earning. To have a positive and reliable cashflow, you need to make sure that the money coming into your business outweighs the money going out of your business.
Better Resource Allocation
Used collectively, your financial statements work best in helping you make better sense of managing your cashflow. Through the use of these financial statements, you can easily discover the best ways to map out your business capital, paving the way for better business finances.
Accurate and up-to-date financial statements are indispensable to your company. Beyond utilizing it for random business audits, it can also serve the purpose of guiding you in major financial decisions, positioning your company to be able to set and achieve long-term company goals.
Read Next: Why Should your Company Consolidate your Financial Statements?
Looking to Enhance Your Company’s Finances?
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Download our Outsourcing: How to Make it Work guide today to discover how we can help in managing your company’s finances.
This post was first published on 14 October 2015 and edited 09 August 2024. Edited by: Aly Tagamolila
