Five reasons you should bother with annual financial reporting
Having your business annual financial reports completed may sometimes be met with the same level of enthusiasm as a visit to the dentist. But are we missing something here? Why are the annual financial reports so important? Financial reports are a bit like your insurance policies: until you need them, they are just another wad of paper.
We are not going to dwell on the obvious use of financial reports – it’s clear they form the basis of your business tax return. So what else are they useful for?
1. To sell your business the annual financial reports over the past three years of trading are the key to establishing the selling price of the business. Why buy a business with a string of losses over past years?
2. For insurance purposes, and in two ways:
- Because the financial reports list the business assets, they are a great place to start to ensure you have insurance cover over all the business assets.
- If you have a problem and are making a claim against others, the business financial reports are the starting point to any claim.
3. To obtain finance from a bank or other institution, the first item of information requested are the business financial reports, with bankers now only wishing to lend to A class businesses.A set of financial reports showing a profitable operation over time go a long way to securing finance on the best possible terms.
4. Your major creditors (or someone you wish to trade with) may ask to review the business financial reports. They don’t wish to place their money at risk with a business that can’t manage its own money, in the same manner a landlord wants to look at its tenant to see if he/she can pay the rent on the premises.
5. Many entities want to look at the financial reports of a business with whom they are giving a contract. They are not interested in a business that does not have the financial recourse to carry out the work being contracted for.
As you can see, financial reports are a business passport to other services, both financial and also other aspects of the business operation. No business operator needs to explain away problems in their operations. Remember the financial reports show comparative figures so bad news remains with you for at least two years.
Prior to the end of the year is the time to be talking to your accountant to ensure your business has its financial reports presented in the best possible manner. It’s a bit like the reason you visit the dentist is to ensure against pain in the future!
In this spirit, Abby Practice is running a FREE workshop on Year End Tax Planning on Tuesday 22 May from 12 – 2pm at Suite 702, 90 George St, Hornsby. Seats are strictly limited so click here to register.