Preparation of financial statements is important for the successful conduct of the activities of any enterprise. It is connected not only with summarizing the results of its financial and economic activities for a certain period, but also with determining the quality of company's relations with public authorities that control the conduct of any economic activity in the state, including the activities connected with the receipt of profit (Gapsalamov et al., 2017; Bittman et al., 2017). Thus, depending on how timely the financial statements are presented by the company, there are penalties imposed on it, the frequency and severity of conducted tax audits. It is also an important fact that timely and high-quality financial statements are required to obtain a general picture of a legal entity's performance, its effectiveness, financial stability and other indicators (Korableva and Kalimullina, 2014). That is why the company's financial statements are important for its management and for external bodies
The efficient use and effective interpretation of financial statements is necessary as leading cause of failure and financial distress is only the poor financial management of business (Coleman 2012; Carter & Van Auken, 2015; Headd 2013; Wiklund & Shepherd, 2015).
Owing to dire consequence that improper accounting practices can have on enterprises producing incomplete financial statements, it is imperative that the accounting practices of enterprises supply holistic and pertinent financial information needed to improve economic decisions made by entrepreneurs (Amidu and Abor, 2005). Information gathered revealed that majority of enterprises prepare financial statements annually yet most of them have difficulty in accessing finance from financial institutions and also difficulty measuring their financial performance based of the accounting records kept due to inadequacy of the accounting records to help prepare sound financial statements representing the true state of financial standing of the enterprises.
Managerial decision is one of the keys to success in an organisation. And as such, management of a given organisation makes decision based on financial performances prevailing in such establishment.
Half of all start-up businesses fail during the first 5 years of their life cycle (Small Business Administration, 2014). The lack of financial analytical strategies on the part of business owners is a factor that affects business success (Fraser et al., 2015). These failures not only have negative impacts for the entrepreneur (Fraser et al., 2015) but also have adverse consequences for a country’s economy (Lussier, 2014) as the increase in economic activities supports and strengthens a country’s ability to generate more tax revenues. As governments are finding ways to boost economic activities, they have recognized the contributions of businesses to growth and economic development for their countries (Lussier, 2014). Given the critical role that start-up companies have within a country’s economy, when a business fails the affect extends beyond the local community.
Entrepreneurs face many uncertainties that affect business success (Fritsch, Brixy, & Falck, 2016). Depending on the strategies that a company uses, a firm can realize successes or failures. If business owners were to understand and implement clear strategies and processes, their operations would become more effective and efficient, determining their levels of success (Olson, Slater, & Hult, 2015). To do otherwise would place the firm in a compromising position that disrupts its ability to become successful and sustainable, resulting in business failure (Fraser et al., 2015). Notwithstanding the context of potential causes of business failure within the first 5 years of operation, it is important that business owners clearly understand the business problem within their organization. In doing so, they become more aware of potential issues, and acquire the strategies and knowledge to adequately deal with and find ways to mitigate the impacts of earlier failure.
The lack of knowledge and strategies for implementing key financial business processes negatively affects business operations (Blackburn, Hart, & Wainwright, 2013). An estimated 30% of businesses fail within their first 2 years of operation, and more than 50% of businesses fail within their first 5 years (Small Business Administration, 2014).
EDITORS SOURCE : Business Administration Project Topics and Research Materials
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