Financial Statements: Why you Need to Update yours Before the Year Ends
When it comes to your small business, one of the most important things you can do is keep updated financial statements. As a business owner, you likely already know that bookkeeping and accounting are integral parts of running a smooth operation – but you may not realize just how crucial having up-to-date financial statements can be.
Updated financial statements help to have a smooth operation and pay taxes
It is integral to keep updated financial statements. Financial statements are like a report card for your business. They show how much money you have made or lost over a certain period, as well as your current assets and liabilities. Updating your financial statements regularly will help you track the progress of your business and make necessary changes if needed. Knowing where your money is coming from and where it is going will also help you make better decisions about expenses and investments.
This is even more important as we approach the end of the year. You will need to plan for the new year, something that can be impossible without the numbers.
Speaking of the new year, we will be starting the 2023 tax season toward the end of January next year. This period should find you prepared to file your taxes, correctly claim deductions and credits, and pay all back taxes.
All the above runs smoothly on the back of updated financial statements. This is because financial statements tell you exactly what you spent, where, and when. These are the things that determine your eligibility for certain tax credits and deductions.
For example, to deduct charitable contributions, your financial statements should show that you gave money to a certain qualified charitable organization. Details such as the amount given and the date are crucial. Your bookkeeping will have this information.
Therefore, as the year comes to a close, it is essential to make sure your financial statements are up-to-date. This may seem like a daunting task, but it is crucial for the health of your business.
Bookkeeping and accounting play a role in this. That is precisely what you need to keep up-to-date financial statements.
If you haven’t hired a bookkeeper, do so today. You can talk to me about our world-class monthly bookkeeping services. Call our office at +1 202-618-1297 to get started.
You can even hire us to do your accounting! My team and I will help you (through financial statements) to track your progress, and set goals for the new year. We will also help you make informed decisions about where to allocate your resources.
Here is the summary of the benefits of having updated financial statements include:
If you’re a business owner, then you know how important financial statements are. They give you a clear picture of your company’s finances and help you make informed decisions about where to allocate your resources.
But what happens if your financial statements are out-of-date? One of the main reasons why it’s so important to keep your financial statements up-to-date is that they provide insights into your company’s overall health. If you’re making sound decisions based on outdated information, then there’s a good chance that those decisions may not be as effective as they could be.
1. Stay on top of your financial and accounting goals
Staying on top of your financial statements will allow you to see how you are performing from a financial perspective. You’ll be able to see whether you are meeting your short-term and long-term financial goals, which will allow you to make changes as needed.
Any time you have a significant change in your financial accounts, it’s necessary to make changes to your corresponding tax records. Without that, you could find yourself paying an unexpected tax bill at the end of the tax season.
2. Tracking the progress of your business over time
As a small business owner, you need to be tracking the progress of your business over time. part of doing this is keeping up-to-date financial statements. Financial statements show you where your money is going and what it’s being spent on. They also show whether or not your business is profitable.
This is crucial, especially if you have been thinking about building generational wealth through your business. You won’t be able to grow that much if you cannot measure your past performances. Growth is factual – you should be able to know by how much your income has grown in the past year. Your financial statements tell you this. Therefore, if you update yours before the end of the year, you can tell how much revenue you have made this year compared to last year.
3. Sound record-keeping for tax purposes
The IRS requires businesses to update their financial statements for tax purposes on an annual basis. When you submit your tax returns, you must make sure your financial statements match the information you have submitted. This is also important when it comes to deductions. The IRS requires certain expenses to be reported for businesses to be eligible for deductions.
The new tax season is just around the corner and updating your financial statements now will help you to avoid problems with under or over-reporting income. Under-reporting income can lead to a few legal problems.
Your accountant (hopefully me) will need to reference your records when filing your taxes, and outdated information could lead to a hefty fine.
4. Evaluating and identifying areas of improvement for your business
Financial statements are an important tool for evaluating the performance of your business and identifying areas of improvement. If you haven’t updated yours recently, now is the time to do so before the end of the year.
Here’s why:
- You’ll get a better picture of your overall financial health. This includes understanding your revenue, expenses, and profits for the year.
- You can identify any areas where you may be overspending or not generating enough revenue. These are key areas to focus on to improve your bottom line.
- You can identify if you haven’t paid enough quarterly taxes during the year. This will help you correct this mistake and dodge a bullet from the IRS!
5. Making sound decisions about where to allocate resources
So why exactly should you go through the trouble of updating your financial statements? You may ask. For one, it gives you a clear picture of your business’s overall financial health.
Armed with this information, you are in a position to allocate resources where they are needed. If it is your accounting department that’s making mistakes, you can allocate more resources to hiring more accountants. If it is your production department lacking, you can allocate resources to that department and keep your business growing.
Finally, financial statements, for example, your income statement, does summarise each revenue line, revealing products or services that are bringing more money or resulting in losses.
It also tells you about each cost item, for example, the costs of keeping your inventory or servicing your cars. Such information helps you decide which product to keep producing and whether you should keep servicing your old business car or buy a new one.
That’s why financial statements are the key to your business success. You need them as soon as yesterday. Stop running your business in the dark.
If you haven’t hired an accountant, talk to me today. Visit THIS LINK and click, “Want Me To Be Your Accountant?” to get started. Or, you can call my office at +1 202-618-1297.
I am also now taking clients for the 2023 tax season. Use the same methods above to contact me. Having me in your corner can help you file accurate tax returns and avoid IRS penalties.
Frequently Asked Questions
- What are the 3 types of accounting?
The three main types of accounting are cost, managerial, and financial accounting.
- Is accounting difficult?
Yes, accounting can be difficult, especially for small business owners who dabble in many things in the business. The best way to deal with accounting is to hire a professional accountant like me.
- 3. What is the difference between accounting and taxation?
Accounting deals with all the company’s finances and operations. However, taxation ensures that the company has enough tax strategies to complete tax returns efficiently.
