What consists of three key reports that are absolutely essential for your business? Your financial statements, of course!
That’s right; your financial statements are key to understanding and improving your business’s financial health. They help you answer critical questions like: “How much money did my business make last month?” and “Is my business on the right growth trajectory?”
Why Do Small Business Owners Use Financial Statements?
- Real-Time Performance Evaluation: Financial statements allow you to assess profitability, growth, and operational efficiency––all important for improving business performance and understanding your finances.
- Easy Decision-Making: Having timely and accurate financial data empowers you to make informed decisions quickly. For instance, comparing monthly financial results can reveal trends, highlight areas that need attention, and guide decisions such as whether to hire more staff or cut costs. Reliable data ensures you’re equipped to act on opportunities or mitigate challenges as they arise.
- Maintaining Partner Relationships and Compliance: Financial statements are often required by investors, lenders, franchisors, and government entities. Routine financial reporting maintains trust and compliance with these stakeholders, demonstrating stability, profitability, and growth potential. As your business expands, financial statements become even more crucial when seeking additional funding or exploring new investments.
The Three Key Financial Statements:
The Balance Sheet
- This statement provides a snapshot of your business’s financial position, detailing what you own (assets), what you owe (liabilities), and your net worth (owners’ equity).
- It follows the equation: Assets = Liabilities + Equity.
- Comparing balance sheets from different dates allows you to track changes and evaluate financial stability. This comparison highlights trends in assets and liabilities, offering insight into whether your business is growing sustainably or accumulating debt.
The Income Statement
- Aka the profit and loss statement, this statement outlines your business’s revenue, expenses, as well as its resulting profit or loss over a specific period.
- Its formula is simple: Profit = Revenue – Expenses.
- Comparing income statements over time allows you to see how your business’s profitability is trending and identify areas where you might need to adjust spending or pricing strategies.
The Cash Flow Statement
- The cash flow statement gives insights into your business’s cash inflows and outflows. It breaks down where your cash is coming from like:
- Operating activities
- Investing activities
- Financing activities
- And how cash is being spent
- The formula for cash flow is: Net Cash = Net Income + Cash from Operating Activities + Cash from Investing Activities + Cash from Financing Activities.
- This statement helps you understand how well your business is generating cash and whether it can meet its future obligations. Cash flow management guarantees that you have the liquidity to cover day-to-day expenses and invest in future growth.
Moving Forward…
Now that you have a better understanding of financial statements, it’s time to take action. Here’s what you can do to start leveraging these tools for your business:
- Keep Accurate Records: Make sure that all financial transactions are recorded and organized.
- Monthly Reviews: Set aside time each month to review your financial statements and address any emerging issues.
- Work with Ceterus: Don’t manage these financial statements alone! Get help from the experts at Ceterus!
Ceterus As Your Financial Reporting Solution
Gain clear and accurate insights into your small business or franchise’s financial position, performance, and cash flows with us.
Our tech-enabled software, Ceterus Edge, provides instant access to both timely and historical financial data, on a desktop or mobile format, so you can manage your finances anytime, anywhere.
View daily sales and cash reports, income statements, profit and loss statements, and peer benchmarking, ensuring you always stay informed about the financial health of your business.
Discover how Ceterus can help you better understand your business’s finances and tax requirements. Schedule a call today. Be sure to sign up for our next webinar on Mastering Financial Statements here.
