Why Your Business Needs Financial Statements

By Randall Orser | Business Income Taxes

Why do I need a financial statement? is a question that bookkeepers and accountants are asked many times by clients.  There are three main reasons why your business needs a financial statement.

  • It is a measurement of how well your business is doing today, has done in the past and what it expects to do in the future.  Investors and potential investors look at financial statements to assess the management of the company and the viability of the business.      They also use a financial statement as a starting point to forecast the company’s future performance.  Lenders look at the financial statement to assess a business’s ability to repay debt.  The financial statement can also decrease the costs that a business may have to pay for capital, seen in lower return rates for investors and lower interest rates from lenders. 
  • You are expected to have financial statements especially by your bank.  Your financial statement assists in bridging the information gap most lenders will not even consider a loan application without up to date financials.  Bankers are notoriously unsympathetic to the stress put on entrepreneurs trying to get their business off the ground and providing an up to date financial statement will make it easier to deal with them.
  • Financial Statements are required by the CRA.  To file corporate tax returns Canadian corporations are required to produce financial statements.   If a corporate tax return is not filed within three months of the corporation year end interest on taxes begins to accrue. Within six months significant late filing penalties are also charged.  In order to avoid these extra costs, it is important to have a financial statement prepared on at least a yearly basis. 

As a business owner, financial statements are vital information for you to make business decisions.  You need to review more than your bank statements to see if you can afford to invest money back into your business.  Having a financial statement will also help you to keep all your information neatly organized for tax time.   

Just having a financial statement is not enough!  You must make sure that you are reviewing your statements regularly.  This will help you to catch mistakes earlier, detect fraud, theft or other illegal activities within your business.  Even if you have a bookkeeper or accountant to do your books you still need to be involved and watchful for any discrepancies.  

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About the Author

President/CEO Number Crunchers® Accounting Inc. Learn how to just say stuff it to this bookkeeping thing with our 'Just Say: "Stuff It" To Bookkeeping program.