I am going to write a series of articles on Financial statements that needs to be maintained by any business entity. Before starting let me give you the big picture of businesses in India,
The Big Picture
No of Businesses = 1.25 crores(Based on GST registration)
No of Listed companies = 7500 companies(BSE + NSE)
No of Pvt limited = 1.25 lakh
PSU's = around 300
Source: Financial Express
We can assume Listed, Pvt limited and PSU's maintain proper Financials because they are required to do so for compliances.
Note: These are dynamic figures because many companies get unlisted, closed and added day-to-day.
Observe Proprietorship and Partnership constitute 91% of Indian businesses. They contribute 20% to GST revenue but around 60% to employment. These companies do not maintain Financials properly because they are not registered with MCA(Ministry of Corporate Affairs). These are businesses most people in India are in contact with (Hotels, Shops, Wholesale, Retails etc).
Need for Financial Statements?
Financial statements are like thermometers for business. They are indicators of what is right and wrong in business.
If you want to expand your business, you need investors, right?. How can you convince your investors?
How a bank is going to offer you a loan? How interest rates are decided?
How earnings or profits are known?
What is the asset value and what is their depreciation?
How much tax should I have to pay?
How much cash I can take out of business without affecting the business operations?
What is the leverage?
Should I expand or maintain the status quo of the business? etc.
Answers to all the questions are Financial Statements!
My next articles are for businesses who want proper financial statements but are unable to implement because for various reasons. We will create and explain all the financial statements in simple steps. Stay tuned!