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Why do I need financial statements if I have a small business? I have a small business which my wife and I started in 2014. We've got 1 employee and our turnover was R890 000 last year.
We're not even VAT registered. So do I really need financial statements if it's a small business, and why?
This is a question we received recently from one of our Tax Handbook subscribers, and while I thought the answer was obvious… I was surprised to see that so many of the business owners were interested in the answer.
Three reasons why you need financial statements in your business
If you run a registered company, you must have financial statements. Here's three reasons why.
1. If you need funding for your business
If you need to get funding for your business, and in some cases to open a bank account, you need to have financial statements. They present your company's financial information in a structured way that's easy to understand. And they present a proper picture of your company's finances. So the bank, or potential funders can see how profitable your business is.
2. It's a legal requirement to prepare financial statements
It's your legal accounting reporting obligation to prepare accurate financial statements yearly. And they must be up to IFRS or IFRS for SMEs standards based on your type of business according to the Companies Act, 2008 for companies.
3. You could be declaring the wrong taxes to SARS
At the end of the financial year, you must prepare your annual financial statements and submit them to SARS according to the Income Tax Act. You use the figures you draw from your financial statements to submit your income tax return. If it's wrong, you could either underpay your taxes and face penalties, or pay over too much and stress your cash flow unnecessarily.
There you have it, now you know why you need financial statements, even if you're a small business.
The content in this article was provided by FSP Business.