Year-end financial statements provide a detailed summary of a company’s financial performance. 60% of small business owners review their year-end financial statements for strategic decision-making.
All companies including big firms like Amazon, Apple, Walmart, Coca-Cola, and Microsoft maintain year-end financial statements to assess their growth and financial health, but so do small business owners. Even sole-proprietors rely on year-end financial statements to make key decisions about the coming year.
In the coming section, we will explain how year-end financial statements can improve your business and some of the famous year-end financial statements.
Variability of Year-End Statements
In general, smaller businesses may only need to produce one set of financial statements at the end of the year, which provides a summary of their financial performance for the entire year.
Larger companies, on the other hand, may be required to produce several different financial statements, including an income statement, balance sheet, and cash flow statement, among others.
These statements provide a more detailed and comprehensive overview of the company’s financial performance and may be required by regulatory bodies or investors. Your CPA can help you assess what statements are necessary and how they can be used. If you don’t yet have a CPA, we are happy to help!
Benefits of Year-End Financial Statements
Now let’s talk about how the year-end statements actually benefit you by discussing it in detail. In the coming section, we have mentioned the different benefits of year-end statements.
Moreover, we have listed some popular examples of how famous companies got benefits from year-end statements.
Evaluate Financial Performance
Financial statements distinguish between your assets and liabilities and show you the state of your company’s performance in terms of profits. Evaluating your financial records will tell if your business has enough cash flow to pay bills and loans.
Furthermore, it helps to measure the percentage increase or decrease in costs or sales. This will show the business owners whether or not the company’s success is improving over time.
A company’s financial statements not only reveal its current financial situation but also its profitability over time. By comparing financial data from different periods, you can identify trends and understand your business’s trajectory.
Make Strategic Decisions
Financial statements give you, and any stakeholders and managers, a detailed view of the company’s past performance and trends, along with the current situation.
In this way, the financial statement helps the business owner make informed decisions about what strategies should be implemented to multiply profits or improve what went wrong in the past.
Let’s take the example of Apple, Inc. In the late 1990s, Apple was struggling financially and faced the possibility of bankruptcy. However, by the end of the year 1998, Apple had turned its fortunes around and reported a profit of $309 million.
Investors and other stakeholders analyzed Apple’s year-end financial statements to see how the company had achieved this turnaround. They found that Apple had cut costs, reduced inventory, and focused on profitable products like the iMac.
This information helped investors and other stakeholders gain confidence in Apple’s future prospects, which led to a surge in the company’s stock price.
Monitor Cash Flow
According to a recent study, 61% of small businesses around the world experience cash flow problems. This issue impacts nearly one-third of the surveyed businesses, affecting their ability to pay vendors, repay loans, and pay employees.
Businesses should monitor their yearly cash flows and ensure that the business generates positive cash flows, as this enables them to operate smoothly and make necessary investments in their growth.
On the other hand, negative yearly cash flow can lead to financial instability, unpaid bills, and the inability to meet payroll.
By implementing good cash flow management practices, businesses can improve their financial stability, mitigate risks, and stay competitive in their respective industries.
This can include reducing unnecessary expenses, negotiating better payment terms with vendors, diversifying revenue streams, and keeping a cash reserve for emergencies.
Meet Legal Requirements
Year-end financial statements are crucial for complying with business laws and regulations.
When it’s time for tax filing, these financial statements are handed over to the regulatory institutes, for example, the IRS, to provide the credibility of the financial data.
If the year-end financial statements are not prepared accurately then the company may face monetary penalties by the IRS. Moreover, in some cases, the IRS can also ask you to face an audit if it finds out missing or inaccurate financial data.
Aid in Tax Planning
One of the primary benefits of year-end accounting is the ability for companies to accurately determine their tax liability and claim deductions.
If you have the correct numbers, you can determine which tax deductions you are eligible for with the help of a CPA.
For instance, taxpayers who make charitable donations to qualified organizations before the end of the year may be able to deduct those donations from their tax returns. Furthermore, by evaluating year-end financial flow, you may claim a deduction on your taxes and can save money on it.
Note: It’s important to note that tax laws and regulations can change from year to year, so it’s always a good idea to consult with a tax professional or an accountant to ensure that you are taking advantage of all available tax deductions and credits that are currently applicable.
Less Hassle while Talking to a CPA
Even if you have hired a CPA for tax planning and saving money, you will have to provide him/her with tons of documents, so he/she can assess your financial health, cash flow, and the possible deductions your company may opt for.
At Akif CPA, we have dealt with numerous clients determine what financial records they need. Business owners who have already made their year-end financial statements help us to figure out their extra liabilities in taxes while spending less time.
Moreover, this also aids to provide business owners with better tax planning that meets their business goals.
Conclusion
The advantages of financial statement analysis include empowering both internal and external stakeholders to make informed investment decisions.
Not only are year-end statements necessary for business owners, but they also have to follow accounting regulations to meet the legal requirements.
If you are having trouble preparing year-end financial statements, our team of CPAs is here to help you! We make sure that all your year-end statements are regulatory compliant and meet your business needs.
