How important are your Annual Financial Statements (AFS)?
Except for the requirement to compile AFS for legislative purposes,
they can prove to be extremely useful.
Most small business owners tend to neglect the financial processing
and reporting of their businesses. Which is understandable. You as a
business owner should focus on the operational aspect of the business
but unfortunately without the finances it would be much harder to do
that.
The AFS are merely a step in the right direction if they are compiled
within a reasonable time and as accurately as possible.
The AFS give you a representation of your company's performance for a
specific year. With a few simple calculations you can determine the
solvency, liquidity and profitability ratios of your business. We will be
posting a few of these formulas and explanations for reference and
your use.
With the AFS compiled and analyzed, you can start formulating a more
precise budget for the next few months and making informed decisions
regarding your business. Decisions such as expanding operations
acquiring new assets, raising your employee's salaries. In the case that
the ratios are not looking to good, maybe cut back on some expenses
target a new market or sell some of the ineffective assets to generate
cashflow.
AFS should not be seen as an obligation to comply with regulations, but
as an opportunity to review the performance of the business.
Should you require any assistance with your Annual Financial
Statements, we are just an email away. Check out our Linkedin page for more useful content.