You really need to prepare financial statements even if you already know your business is profitable. You may be convinced that your business is doing fine, but you will need proof for investors, creditors, shareholders, government agencies, and essentially you will also need it for your own peace of mind. Seeing the facts and figures in front of you that prove your success is empowering is the best feeling ever for a businessman.
Better Decision Making
Financial statements are vital to making crucial business decisions. Review more than just your bank statements whenever you are considering whether or not you can afford to invest money back into your business. You can have a clear and accurate vision of how your business is currently performing with the help of financial statements, so you have a means of monitoring its progress and identifying opportunities for growth.
More On-time Payments
To ensure customers pay on time, accounts receivables is essential. Account payable reports will make sure that your vendors are paid on time. You can even predict your future cash flow with the reference point.
Prepared for Tax Time
Regularly updated financial statements will keep your information neatly organized for tax time. You don’t want to realize that all you have is a shoebox full of receipts on April 14th. If there is regular financial reporting means that means your accounting software is also being updated regularly.
Provide Proof of Your Success
All and all your financial statements will act as a historical record of the overall success of a business if there is ever a decision to sell the business or obtain new investors. While trying, new clients and suppliers may also request financial statements to determine whether they should conduct business with your company or not.
Catch Costly Mistakes
To catch up mistakes earlier, you need to review your financial statements. They can also help an owner detect theft, fraud, or illegal activities within their business. Hiring a professional accountant or a bookkeeper, or an entire finance department may help you in some way but that doesn’t mean you still don’t need to be involved. You need to trust the person who is handling your finances and on the other hand, you need to be watchful for any discrepancies.
How Long Should You Keep Business Financial Statements?
IRS or Internal Revenue Service has established some basic record-keeping rules for tax documents. Outside the tax arena, there’s remarkably little guidance about how long you should keep business paperwork. Accountants and bookkeeping services recommend keeping original documents for a minimum of seven years. Seven years is sufficient time for defending tax audits, lawsuits and potential claims.
Some specific documents are needed to do that:
- Business Tax Returns and supporting records must be kept until the IRS can no longer audit your return. In most cases, the IRS can audit you for three years after a filing, but that time period extends to six years if the IRS suspects you made a “substantial error” on your return.
- Payroll tax records, including time sheets, wages, pension payments, tax deposits, benefits, and tips must be kept for at least four years after the date you actually paid them.
- Current employee files should be retained for at least seven years after an employee leaves, is terminated or retires. In case an employee suffers a work-related accident or files a claim against the business, it’s advisable to retain your records for up to 10 years after the claim is resolved.
- Job applicant information must keep for at least three years, even if you didn’t hire the applicant.
- Ownership Records, such as business formation documents, annual meeting minutes, by-laws, stock ledgers and property deeds, should be retained permanently.
- Accounting Services Records must retain for at least seven years. Even if you hire an accountant, then he/she will often recommend that you keep financial statements. Like check registers, profit and loss statements, budgets, general ledgers, cash books and audit reports permanently.
- Operational Records, including bank account statements, credit card statements, canceled checks, cash receipts and checkbook stubs, follow the seven-year rule.
Fortunately, online invoice software makes you able to access instant and accurate financial statements from anywhere with internet access. From tracking clients, enter new invoices, manage expenses to review reports while making crucial business decisions. For the success of your business, it is necessary to maintain financial statements. But they can be easy and accessible if you have the right software.