In this article, we’ll take a brief look at the three main financial statements that you should be looking at regularly as a business owner. How often? At a minimum, at least once a month – however, if you have time, look them over weekly!
Why should you look at your financial statements? The simple answer is that they help you to keep score in your business. Or in the words of Kevin O’Leary, aka Mr. Wonderful, if you don’t know your numbers, you don’t know your business. As a business owner, you are undoubtedly familiar with your day-to-day activities, what customers or clients are being serviced, what sales have been made, etc. But looking at your financial statements can help to keep an overall view of your business, allowing you to make adjustments as needed.
The good news is that the three main financial statements can help to answer all of these questions:
- Balance Sheet
- Income Statement
- Statement of Cash Flows
Here is some brief information on each statement and what they can tell you. Stay tuned for further blog posts breaking each statement down further!
The Balance Sheet:
What does the Balance Sheet tell you? It’s generally the first one to be looked at. It tells you what the capital or equity is in a business at a specific time. And what does that mean? Think with how much your business owns and owes, and what’s left over. This is similar to calculating one’s net worth. You can tell your ownership in the business with this report.
The Income Statement:
Also known as the Profit and Loss, the Income Statement tells you how much income your business received, and what your expenses are. The result is your net profit, or in a not-so-ideal result, your net loss. The Income Statement is run for various periods, so depending on what time frame you want to look over, it could be over last week, last month or last year.
The Statement of Cash Flows:
The Statement of Cash Flows is another extremely important statement. Depending on your business, you may have to wait to receive payment from customers, or you may buy on credit. The Statement of Cash Flows lays out exactly where your cash came in from, and where it went out to for the period.
For example, if you closed a number of sales last month, but didn’t collect until this month, you would actually be receiving your cash on those sales in the current month. This is very important information to have and think with when operating your business.
Reports Specific to Your Business:
Depending on your business, all sorts of reports can be run to give you particular insights. For example, if you want extra details on who owes you money and for how long, there’s a specific report that will break this down for you.
If you work with a bookkeeper or accountant, ask him or her what other reports could be run to help give you the insights you need for your business.
Do you have any questions, comments or feedback? Email us at firstname.lastname@example.org.