What's your company really worth? If you think it's the amount listed on your latest financial statement, you may be surprised. Many businesses have inaccuracies on their books that they're completely unaware of, inaccuracies that can cause serious issues down the road when you're applying for a loan, making a court settlement or dealing with tax assessment inaccuracies. Fortunately, there's a great tool you can put to use to help find and correct these inaccuracies: financial statement analysis. Here's a look at what this entails, how to implement it and how it can benefit your company in the long run.
How Does Financial Statement Analysis Benefit Your Business?
When you have your business financial statements analyzed, you're essentially having them audited for accuracy, but it goes beyond that as well. Rather than simply checking that 2 + 2 = 4 or that your books are balanced, the analysis takes a much deeper look at the accuracy of the details on your financial statements over time, then adjusts them accordingly to provide a more accurate picture of your company's overall financial health over time. This allows your income projections, net worth and similar calculations to be done in a fashion that reflects the true situation of your company.
To start the process, you'll need to contract with a reputable, certified business valuation specialist, preferably one who has some experience appraising businesses in your industry. A certified valuation specialist has been through an extensive training process that includes field experience and education in a wide range of appraisal topics, including which methodologies they should use in which situations. These methodologies have been tested extensively in a wide range of real-world situations, such as court cases, insurance claims, tax agency appeals, business sales and securing loans for operations or continued growth.
The appraiser will look at your company's financial records, check them for accuracy, determine whether some assets have been over- or under-valued in your books and otherwise consider areas where your books may not be accurate. As an example, if you purchased a pickup for your construction business and have completely written it off over a five year period, it will show no value on your books.
However, if you continue using that pickup on a daily or weekly basis as a vital part of your business, it still has value. You could sell it, trade it in or possibly even use it as collateral to secure a loan for other business purposes. If that value is not reflected on your books, that's a valuable asset you could tap as a financial resource during a time of need for your business. The business valuation specialist looks at assets like that and includes it in the adjustment of your books to reflect a more accurate financial picture for your business.
By using financial statement analysis as a tool to improve your company's bookkeeping accuracy, you can ensure that the financial reports that you're generating are providing a precise picture of your company's overall financial wellbeing. However, you can't get this analysis performed by just anyone off the street. You'll want to make sure to use a certified business valuation specialist. The certification process ensures that they know which tested methodologies to use in accurately calculating your company's value and the accuracy of your financial statements.