What are the most important tools in your business? Very few business owners are blessed enough to survive without embracing and understanding them. I would even argue that the majority of the exceptional-few, who get by without utilizing them, have someone on their team who does understand them. This is beginning to sound like a riddle, I know.
The answer: Your company’s financial statements are the most important tool, but only if they are useful. The meaning of useful, in this respect, relates to how your financials’ accessibility, clarity, and reliability influence your business’s financial health.
As the term “useful” suggests, the fundamental requirement necessary to fulfill the term is the act of using. This may sound obvious, but it is an absolute necessity. If you do not use your financials in your decision making processes, then you will not be “in the know” about the financial health of your company. Inadequate financial awareness leads to risky uncertainties, which can quickly translate to costly repercussions. On the other hand, there are many benefits to having useful financials at your disposal. Including greater access to credit, lower interest rates for loans, analysis for projected growth, and most importantly, more money for your business.
Once you’ve made a commitment to use your financials, you can begin to appreciate the following qualities that describe readily useful financial statements.
1. Easily readable
No one wants to make reading harder. It imperative your company’s financials are easily readable, concisely stated, and focused on what is important.
2. Understandable
Reading is great, understanding reigns supreme. Gaining a strong understanding takes training and patience. Concisely stated financials aid in the ease of understandability, but to attain a level of financial literacy that will serve your company well often requires insight from a trained professional.
3. Timely
Timely financial statements allow you to make timely decisions. Timely decisions allow you to capitalize on opportunities or avert disasters.
4. Consistency
Anyone can record transactions, although, unless you have learned the accounting principles and apply them regularly, you will not be able to achieve consistency. Without consistency, the financials aren’t useful.
5. Comparable
This goes hand in hand with being consistent. Financials will never be comparable without being consistent. Comparability allows you to plan by using the past to predict the future.
