Access to finance: part three
Following up on part one and part two of the previous articles, part three brings you the importance of financial statements. What I have experienced is that most entrepreneurs do not spend enough time on this aspect of their businesses or rather downplay its importance.
Financial statements are so foreign to some, you wonder how their businesses have made it this far, but obviously it also shows that the financial statements are not the only decision making tool in the business. You could be operating profitably yet losing money without knowing, you could be going backwards without knowing and this could eventually catch up with you if it remains unresolved.
Financial statements show the financial position of an enterprise at a given point in time, usually a 12 month period. Furthermore, they reflect the performance of the business and are a useful tool for both internal and external stakeholders. By analysing financial statements, one can assess the efficiency and performance of an enterprise.
Add to that the following:
- They measure profitability;
- Indicate the trend of achievements;
- Assess the growth potential of the business;
- Give a comparative position in relation to previous years as well as other firms
- Assess overall financial strengths including solvency and liquidity of the enterprise and this can be compared to other firms etc.
There is just so much information that one can gather from financial statements and as a stakeholder, you would analyse the financial statements in order to gather sufficient information to making a sound decision.
What’s important is that as a business owner, you start to be more aware of the financial position of your enterprise. The Annual Financial Statements are for all the stakeholders but as the captain of the ship, the decision that ensures whether you sink or swim lies with you. Therefore, take time to understand and analyse this information in detail as the consequences may be too dire to leave to chance.