-As long as I know my bank balance I am happy. What is a financial statement?
-I have a basic understanding of financial statements but would not be able to confidently interpret the results.
-I am familiar with financial statements and can interpret the meaning.
Financial statements are a reflection of what happened in the business in the past. They reflect every decision you made and reveal how every dollar was spent. Being able to interpret financial statements is a very important business skill. Many colleges offer evening accounting courses.
As your business grows your financial statements becomes increasingly important. Banks will use them to determine the financial health of the business and your ability to repay a loan.
When you buy a business, you will need to hire an accountant to review financial statements for liabilities and due diligence.
For example, if you are doing a stock purchase, having your CPA examine financial statements is especially important to determine any outstanding or potential liabilities. Because when you do a stock purchase you assume all the liabilities of the company. This would include any discrepancies in tax returns or creative bookkeeping that could arise out of an IRS audit. Examine potential environmental issues that may become critical in the future.