Without these financial reports, you are in the dark when it comes to your business.
You’re making decisions in the dark if you don’t review the financial reports for your small business. Reviews should be completed on a quarterly, if not monthly basis.
There are a wide range of financial reports at your disposal but don’t let this intimidate you. You can obtain a good understanding of your status by utilizing three reports. The income statement, the balance sheet, and the cash flow statement. Let’s look at each.
Often referred to as a profit and loss, the INCOME STATEMENT provides an accounting of your income and expenses over a stated period. Financial performance is assessed by giving a summary of how the business incurs its revenues and expenses through both operating and non-operating activities.
The BALANCE SHEET provides a snap shot of your business on any given day. Review of this financial report indicates what is owned, what is owed, and what is left over.
The CASH FLOW STATEMENT is the final piece of the puzzle. It is also the financial report that is most often overlooked by bookkeepers and business owners. A net profit and strong balance sheet can be deceiving. A business can go out of business because they don’t have sufficient cash. The Statement of Cash Flows can reveal problems in this area as they surface. For this reason, it may be the most valuable of the three statements, particularly for smaller organizations.
By reviewing these three financial reports you can make decisions with confidence. If your bookkeeper or accountant is not presenting an analysis of them on a regular basis, you should request they begin doing so. A thorough internal financial review is prudent annually or when faced with making a significant business decision. Financial reports are important tools that can help you nail your success.