Importance of Accurate Financial Reporting for Businesses
Financial statements are more than just a cumulation of numbers. The statements play a pivotal role in strategic decision making, build trust among the stakeholders, and mitigate errors. Let’s take a look at the benefits:
Better decision making
Every time your business makes an important decision, the financial manager takes a detailed look at the financial statements to evaluate your company’s assets. Accurate asset valuation will help you analyze whether your company can afford to purchase more or has enough to pay off the liabilities. If the assets are depreciated, you might need to sell them off.
A financial reporter also looks at your balance sheet’s debt profile to see the kind of loans you need to acquire and can afford. When you have to pay the dividends, the CFO needs accurate financial statements to analyze the profit position and decide the payout ratio. To reach the quantum of dividends’ final value, they’ll also consider the cash reserves, debt position, and the retained earnings.
In short, an educated and strategic decision isn’t possible without accurate cash flow statements, income statements, and working capital statements.
Whenever a potential client is planning on striking a deal with you, they’ll start by looking at your financial statements. If the statements are accurate, the potential vendors, lenders, and investors will be glad to put in their offer. A well-formulated financial statement will tell the stakeholders that your business is doing well. On the other hand, if the statements aren’t up-to-date and unorganized, you might just lose out on a deal. It builds a certain sense of trust within the business community and improves financial transparency.
Reduce tax liability
Corporate taxes contribute a significant chunk of any business’ yearly expenditure. If you overstate the profit, you may end up paying unreasonably high corporate taxes. Overstating or understating the profit often stem from numerical discrepancies and poor reconciliation practices. As a result, business owners often end up worried about how little they are left with after paying the taxes. On the other hand, accurate financial reporting will make sure you don’t lose out on your hard-earned cash in the form of tax payout.
Faber LLP is an Edmonton-based accountancy firm that offers customized and client-centric accountancy, assurance, taxation advisory services. Here’s how we can help your business grow.