BENEFITS OF REGULAR FINANCIAL STATEMENTS
Unlike a major corporation that is required by stockholders, banks, or regulators to have monthly or quarterly financial statements, there is typically no such mandate for most small businesses.
Many small business owners may dismiss the idea of regular financial statements, thinking they are:
- Too expensive,
- Too much of a hassle,
- Unnecessary, since their business is simple, or
- They have gotten along without them for many years.
However, regular (monthly or quarterly) financial statements offer the following POWERFUL benefits:
- A holistic, and inter-related snapshot of a company's finances--it's a report card in the form of the income statement, it shows the financial health of a business in the balance sheet, and summarizes cash-- the "life blood" in the statement of cash flows.
- A mental, one time "financial statement" in your head, or on the back of a napkin, about how you did on one job or over one month doesn't tell the whole story. The three financial statements provide crucial accuracy and insight!
- I find time and again that human nature distorts results positively --how we think or want things to be aren't how they actually are when wearing these "rose-colored glasses". Perception is not always reality, in the case of financial information! Having those hard numbers in front of you helps you make decisions more rationally and logically, rather than based on deluded, emotional hunches.
- While your profit picture for one job or one month may not be that "complicated," the whole picture may need a closer look. The accounting system allows you to see the "big picture" rather than fixating on just one great job or one super month of sales.
- Financials allow you to see trends...Is gross profit holding steady? Are travel expenses getting out of hand? Are sales in line with goals?
- Monthly financial financial statements are the solid foundation for further study of questionable line items, for budgeting, for comparing current vs. prior years, for comparing different departments or products, for other analysis like capital budgeting or lease-buy decisions, and they are a rational benchmark for goals.
- Regular financials create peace of mind for a business owner! The certainty and accuracy of knowing a bank balance, the current inventory level or that profits are at an expected level all feed this peace of mind!
