Question

As a small business owner, your financial strategy may be limited by the lack of revenue during periods of your business. These fiscal challenges may be overcome by understanding and utilization the company’s financial information effectively. Develop a post that discusses each of the financial statements and explain in your own words how they will contribute to the success of your business.

Answer 1

As a small business owner, our financial strategy may be limited by the lack of revenue during periods of our business. Through an effective financial planning we can ensure the optimal utilization of financial resources. Management of finance is an art. Without proper knowledge and skills no one can suceed.

“Financial Management comprises the forecasting, planning, organizing, directing, co-ordinating and controlling of all activities relating to acquisition and application of the financial resources of an undertaking in keeping with its financial objective.” Raymond Chambers

Effective Utilisation of Funds: Effective utilization of fund is our responsibility. We have to point out situations where the funds are being kept idle or where proper use of funds is not being made. All the funds are procured at a certain cost and after entailing a certain amount of risk. If these funds are not utilised in the manner so that they generate an income higher than the cost of procuring them, there is no point in running the business. Hence, it is crucial to employ the funds properly and profitably. Some of the aspects of funds utilization are:-

(a) Utilization for Fixed Assets: The funds are to be invested in the manner so that the company can produce at its optimum level without endangering its financial solvency. For this, the finance manager would be required to possess sound knowledge of techniques of capital budgeting.

(b) Utilization for Working Capital: The finance manager must also keep in view the need for adequate working capital and ensure that while the firms enjoy an optimum level of working
capital they do not keep too much funds blocked in inventories, book debts, cash etc.

Financial statements are summaries of monetary data about an enterprise. The most common financial statements include the balance sheet, the income statement, the statement of changes of financial position and the statement of retained earnings. These statements are used by management, labor, investors, creditors and government regulatory agencies, primarily. Financial statements may be drawn up for private individuals, non-profit organizations, retailers, wholesalers, manufacturers and service industries.

Comparison is the major advantage of financial statements. We can compare information related to number of years.