Importance of Preparing financial statements for your Small business in South Africa.
Running a business comes with a few obligations and procedures that need to followed not only for the sake of success but sometimes it spills to issues to do with compliance ,failure of which might result in complications with relevant authorities. In this post i will highlight the importance of financial statements in running a small business, their importance in regards to compliance with the law and some of the important data which you can only find in the statements themselves.
What are financial statements?
According to investopedia they are the reports that convey your small business’s activity and its financial performance. This is very important to a business owner since it gives a sense of direction to the business and also helps improve your performance. They also help in terms of cash injections needed and also knowing the cash flow of the business.
According to financestrategists.com “Financial statements are key tools businesses use to track and provide insights into a company’s overall financial performance and health. These reports provide a snapshot of a business’s financial situation, results of operations, and cash flows.”
Who might also need them?
- In the case of South Africa All Private or personal liability companies that are required to be audited by the Companies Act, 2008 or regulation 28, must file a copy of the latest approved Audited Financial Statements on the date that they file their annual return with the CIPC.
- They help in-terms of how much tax your business should pay to SARS since the law agues that It is compulsory for small, medium and large businesses to submit signed financial statements to SARS on the submission of their ITR14 (company tax return).
- Investors, shareholders and other stakeholders also need them to know how much dividends they are getting at the end of a certain financial period moreover, knowing how the company is performing.
- Banks and other companies need them in cases like applying for a loan facility or purchasing goods and other things on credit
What is included in Financial statements?
- Balance sheet
- Income statement
- Cash flow statement
What happens when you fail to submit them?
Your guess is good as mine! The tax man will come after you which might have huge implications for your business.
The CIPC won a High Court order empowering them to impose a 10% penalty of annual revenue on companies that fail to prepare annual financial statements (within 6 months of year-end).
Failure to submit annual financial statements to CIPC contravenes Act, 71 of 2008.
How we can help you
We are a registered accounting firm , if you need clarity on anything pertaining financial statements or you need assistance in preparing them you can book a free a consultation with one of our pro accountants by clicking the button below.