Frequently, business owners ask whether they really need to prepare management financial statements when they already know their business is profitable. The answer is definitely yes. You may be convinced your business is doing fine, but you will need proof for investors, creditors, shareholders, and government agencies. You also need to know.
Why prepare monthly management financial statements?
Better Decision Making
Management financial statements are vital for making crucial business decisions. You should be reviewing more than just your bank statements whenever you are considering whether or not you can afford to invest money back into your business. Management financial statements will give you a clear and accurate visual of how your business is currently performing and a means of monitoring your progress and identifying opportunities for growth.
More On-time Payments
Management reports like accounts receivables are essential for ensuring customers pay on time and account payable reports will make sure your vendors are paid on time. It will also give you a reference point to predict your future cash flow.
Prepared for Tax Time
Regularly updated financial statements will keep your information organized for tax time. Regular financial reporting means your accounting software is also being updated regularly.
Provide Proof of Your Success
Management financial statements will act as a historical record of the overall success of your business, if there is ever a decision to sell the business or obtain new investors. New clients and suppliers may also request financial statements while trying to determine if they should conduct business with your company.
Catch Costly Mistakes
A set schedule for reviewing your financial statements will help catch mistakes earlier. They can also help you detect theft, fraud, or illegal activities within your business. As much as you want to trust the person who is handling your finances, you need to be watchful for any discrepancies.
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