Choose The Correct Statement Involving The Statement Of Cash Flows Financial Statements – Business Owner’s Friend Or Foe?

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Financial Statements – Business Owner’s Friend Or Foe?

Financial statements are a set of statistics and results that are not similar to the statistics and results that appear after a sports match. For the owner or manager of a sports team, statistics, replays, opinions and ultimately the score are an essential part of analyzing, adjusting and improving the game. They would never be ignored. This is their way of increasing their win rate. In contrast, more often than not, business owners and managers seem to view their financial statements as a necessary evil to satisfy the IRS. They are either completely unaware of the power of these reports or simply choose to ignore them. Many business owners are happy to hand over reports to a bookkeeper or accountant to analyze.

So what’s wrong with that? Well, for starters, when a business owner doesn’t use financial reports as a tool, profitability is based more on luck than strategy.

Take, for example, forecasting a company’s profitability. Without knowledge of past performance, how do you arrive at reasonable budget numbers? When done right, there will be at least two components, historical performance and projected growth. But if you do not clearly understand what is happening in your company, what minor or major changes will you make? Do you have the right mix of staff? Are there product lines that are not profitable? Is your price correct? What about your overheads, can this be improved or is it already in line with industry standards? How exactly can you improve your score? Do you know when there is a black hole draining your profits?

Then there’s the issue of control. Who controls your company? Do you have controls in place? I can tell you from experience that when the owner does not know what is happening with the company’s finances, there is a lot of room for corruption. Would you know if someone is stealing from you? Sometimes it’s a small, seemingly insignificant imitation, and other times it’s more like grand theft. This happens all the time and the business owner is often completely unaware of it.

The solution is for the business owner to educate himself about the financial aspects of the business. This does not mean they have to become accountants. However, it is crucial that they familiarize themselves with the existing accounting model. They must understand the language. Business finance is no more difficult to understand than most other aspects of running a business. It’s probably less difficult than some aspects.

The three most important financial reports are the balance sheet, the income statement, and the cash flow statement. The most important KPIs are within these three reports. It’s a cake walk!

Are financial statements your friend or foe? A friend, definitely a friend! Take the happiness out of profitability.

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