As entrepreneurs and business owners we are often so busy with the running of our businesses and focusing on our core service that the importance of taking care of our financial books and records can be neglected. Unless of course accounting is our core business and then hopefully we aren’t ignoring it.
For the rest of us, it is critically important to stay on top of these items and have the right people in place to take care of them.
Before we look at the importance of timely financial reports perhaps a quick review of what I think two key financial statements are that we should all be reviewing regularly:
- The Income Statement details revenues and expenses over a certain period of time
- The Balance Sheet is designed to show you a picture of your assets and liabilities (debts) at a point in time
The importance of financial statements
Leaving aside some obvious bias I have as a professional accountant, let me give you three key reasons I think they’re important to you.
- Tell you the performance and the value of your company.
- Help others measure the value of your company.
- Plus other tools help you manage your company when you can no longer be hands on with all the details.
Timely financial reports are critical
You may have noticed in the two financial statements that I mentioned earlier that both talked about time. As in life, timing is very important with financial statements.
Financial reports detail a business’s financial performance for a period and its financial health at a given time. Therefore, in order for the information to be useful, it needs to reach the user on time.
Users of accounting information need their financial statements promptly to ensure that their financial decisions are based on up to date and accurate information.
You can image the problems of late information if the users were potential investors to a public company’s share offering. It would be nearly impossible to assess the accuracy of months old records and likely give the investor little confidence to invest. Changes could have been drastic in those months since the statements were prepared and they likely wouldn’t reflect the true value of the company.
So how often do you review your financial statements? Do you do it yourself or have someone else in the company review them?