Reasons To Remain Vigilant About Your Financial Statements
The most common reason that businesses fail is their lack of financial health. Therefore, as a business owner, you need to keep a very close eye on your business financials, including your profit and loss statement, cash flow statement, and balance sheet. These are reasons you should consistently review these statements.
If you offer credit to your customers, you typically will have outstanding accounts receivable. Many companies don’t keep track of their receivables and how long they have been out. Although these are positive assets on a balance sheet, if you aren’t collecting them regularly, your receivables can damage your business’s financial health.
If you notice that you have a lot of outstanding accounts receivable on your balance sheet, you can go back and review all your customer accounts. Then, you can start or pursue a collections process to reduce these outstanding balances.
When you go into business, you typically have bills that are automatic or recurring. For example, you may receive monthly services, such as internet access, that are automatically billed every month. Although these vendors typically have a great reputation for regular, proper billing, mistakes can happen. You may be billed twice or billed more than you owe one month, and if you don’t regularly check your financial statements, you may not catch the error. Although small errors probably won’t damage your financial health, consistent or large errors can.
Whether you seek investment or traditional bank loan financing, your financials need to be up to date. You see, your investors and bank depend on these documents to see whether your company is financially viable. Your investors need to know that they will receive a decent return on their investment, and your bank needs to know that you can pay back your loan.
You will get the best loan terms when your company’s financials are healthy and in great shape. Therefore, apply when your cash flows and profitability are at their peak. If you wait until you need the money, such as when your cash flows are low and you are not experiencing much profit, if any, you are at the bank’s mercy and may not receive any financing at all.
Your business financials will tell you when your company does the best each year. For example, if you sell products that are used during the summer months or by those in warm climates, your financials will look the best in the spring and summer.
Your business financials directly reflect the health of your business. They can illuminate problems that may need your attention and times when your financial health is optimal so that you can get better financing. Therefore, check your financials regularly.