Timely And Accurate Financial Statements
Mar 05, 2010
How Can They Help Your Company?
The preparation of timely and accurate financial statements is critical to the success or failure of a business. The Chief Executive Officer, owner, partner or a member of the senior management team of a business must review the financial statements and have a good understanding of them. Visualize a funnel, with all the daily activities and costs of a business - sales, production, distribution, advertising, promotion, warehousing, engineering, research, accounting and administration - dropped into the top of this funnel, with timely and accurate financial statements coming out the bottom of it. Each and every internal and external stakeholder in the business - owner, shareholders, partners, management, employees, suppliers, landlord, bankers, legal counsel, consultants, leasing companies, federal and state tax agencies, credit agencies, potential buyers and/or sellers of the company - all depend upon and have a vested interest in the issuance of timely and accurate financial statements, the review of the financial statements and an understanding of the financial statements.
The preparation of timely and accurate financial statements creates confidence, credibility, reliability and business awareness of the owner and senior management in the eyes of bankers and other financial institutions and investors who provide cash and working capital to the business. Bankers and other financial institutions are more apt to provide the necessary cash and working capital when they have confidence the owners and senior management know what's happening in the business. The greater the level of confidence bankers and other financial institutions have in timely and accurate financial statements, the easier and faster it is to obtain the necessary cash and working capital at attractive interest rates, with satisfactory covenants, terms and conditions and the easier it is to increase cash and working capital as the business grows. This is especially valid when the business experiences ups and downs during the various economic cycles of the domestic and worldwide economy.
The internal review of financial statements and especially management's understanding of the financial statements are critical elements in making proper strategic and operating decisions regarding the business. Timely and accurate financial statements provide key financial ratios and trends, in comparison with previous months and years and in comparison with industry peers. The understanding and analysis of these factors provide owners and management with the ability to anticipate cash and working capital needs before events occur in the business. There is nothing worse to owners and management than to find themselves with inadequate cash and working capital to grow the business when an opportunity is presented to it. Understanding financial statements, financial ratios, inter-relationships among the various business functions - sales, production, warehousing and inventory control, engineering and accounting - is the key to a successful business. It enables the business to better budget the future and not find itself in the difficult and sometimes insurmountable situation of having no cash nor working capital to fulfill its objectives and insufficient or no time to explore options to obtain cash and working capital.
Timely and accurate financial statements understood by owners and management, enable them to look at "what if" scenarios. What is the impact on cash, working capital and profits if the business grows 15%, 20%, 25%, 50%? What is the impact on cash, working capital, expenses and profits if greater promotional programs are offered to customers? What is the impact if the business expands distribution domestically and internationally? What is the impact if the business introduces new products?
The preparation of timely and accurate financial statements and the analysis and understanding of financial statements empower the owner and management to significantly control the business's direction and destiny on its own terms and conditions and achieve its long-term goals.
A B2B CFO® partner can help your business prepare timely and accurate financial statements and understand their impact on your business.