Financial statements and reports is important information in large corporations, government and not-for- profit organizations. Annual general meetings of the said organizations cannot run smoothly without these vital reports.

Investors, donors and bankers scrutinize financial statements carefully before committing themselves financially.

Small business on the other hand has not adopted a culture of using the financial statement as a growth tool. For the small business, a financial statement is drawn up only for the taxman or when emergency loans are required from a bank. No further evaluation of the financial statement takes place.

Micro and many small business owners don't even know where to begin, when they look at their accounts. Business owners should move away from the annual review of accounts (for tax purposes) to regular intervals of interaction with their accountants.

Half yearly or even quarterly review of accounts is highly recommended. Important information such as accounts receivable versus accounts payable, inventory levels and cash flow requires regular scrutiny. Sales margins should be analyzed regularly.

Key performance ratios can be extracted from financial statement information. Ratios determining liquidity (available current assets to cover current liabilities), Gearing/ solvency (All assets less liabilities) is extremely crucial for the survival of the business. Additional ratios extracted from financial statements would be debtor's settlement period. Very important if a business is to avoid cash flow problems due to debtors settling late.

Most business owners look for a profit or loss on financial statements. Profits reflecting on financial statements are a common contributor to confusion. Since financial statements can reflect a profit, but the business is short of cash, or the converse can also be true. The cash flow statement gives a complete picture, since it would reflect clearly how profits or losses tie up to cash flows. With regular explanation and guidance by the accountant, these figures will eventually begin to explain themselves.

It is advisable for business owners to familiarize themselves with the concepts of financial statements, and to use this tool, for growth!

Accounting and finance related queries can be addressed, on our website. Feel free to visit our site by clicking on the url below.

Sean Goss

website: http://www.sgafc.co.za

Source: www.isnare.com