As a small business owner, your finances can appear daunting to sort through and understand. We at Intentional Accounting have created some tips and information on financial statements to help you fully comprehend the status of your small business finances.
Review Your Financial Statements
The first step in understanding finances, whether personal or an entire corporation’s, is to check the financial statements. There are three primary financial statements you should regularly check as a small business owner: the balance sheet, cash flow statement, and income statement. Intentional Accounting provides a resource about the importance of each while giving a high-level overview of how to read them.
Balance Sheet
Your small business’ balance sheet gives you an overview of what your business owns and what it owes, ultimately calculating your business’ equity or net worth. It calculates this by laying out your assets and liabilities. You own assets such as cash, property, stocks, and bonds. This is where the majority of your company’s value exists. Liabilities, on the other hand, are what you owe, such as employee wages, loans, and taxes. If you have too many liabilities, your small business could lack liquidity, which is another thing your balance sheet calculates. Liquidity determines your business’s ability to move around cash and assets quickly. If you do not have high liquidity, it usually means you have multiple and high-costing liabilities. At Intentional Accounting, we can review all your assets and liabilities to formulate a plan that improves your business’s liquidity.
Cash Flow Statement
Your cash flow statement is a more immediate representation of your finances than your balance sheet, as it provides you with the inflow and outflow of cash transactions. It tells you where your cash is coming from and where it is going. Overall, it takes your inflow and outflow and calculates your net income. Your financial statement is crucial to calculate how much cash you have on hand during a particular time period so you can better manage and plan where you invest or spend your money.
Income Statement
Similarly to a cash flow statement, your income statement calculates net income. However, this financial statement aims to determine whether your business is profitable in its current state. Regularly looking at your income statement is key to keeping your business afloat in the long term. Your income statement is beneficial because it can also track dramatic increases in product and service returns or the cost of goods and services sold as a percentage of sales. Noticing these stark increases or decreases can determine your small business’s operating performance. The income statement is also called a profit & loss statement or a statement of operations.
Understanding these three financial statements can improve your business’s profitability, liquidity, and cash flow. Each is important in running a small business so that you can succeed in the long run.
Let Us Help You Continuously Adapt and Monitor Your Finances
This is a lot to remember, we know! However, you do not need to try to wrap your head around the intricacies of each financial statement. Instead, at Intentional Accounting, we can generate and explain those financial statements alongside a bank reconciliation statement for you. We can also create a financial plan, keep records of your finances, clean up your books, or provide any other accounting services you may need. Check out our services to find out what we can do for you regarding accounting and finances. If you are ready to plan out your finances or want to have your accounting books tuned up and cleaned up, we encourage you to contact us to get your small business on the path toward financial stability.
