What Does A Business Financial Statement Tell You

Your income statement is going to tell you a lot about the financial strength of your business. Aside from your income statement, the cash flow statement and the balance sheet are also very useful tools. Although bookkeepers and accountants are often the ones taking care of these statements, it is still essential for a business owner to gain basic understanding of these statements.

Cash Flow Statement

It is important for your business to have enough cash to stay afloat. Businesses often fail because of problems with cash flow. This is because cash may not always flow into your business. You can have a profitable business but still face cash flow issues. It is easy to identify whether or not your business is making a profit by merely referring to your income statement, but it does not give you details of the missing or delinquent payments. Business owners maintain a cash flow statement to gain a better understanding of the flow of cash in and out of your business. The update is done on a daily, weekly or even monthly basis. In determining your cash balance, you need to calculate the operational cost, asset investments and financing.

The operational costs will give you a clearer picture of the cash you are generating before taking the cost associated with investments or financing into consideration. The asset investments refer to the inflows and outflows from sales and purchases of long-term business investments which include equipment, property, assets and securities. The financing refers to the cash you receive from line of credit, business loan or the sale of stock.

Balance Sheet

The balance sheet shows the business assets, liabilities and equity of your business. Most likely than not, investors focus on your income statement, but the balance sheet can be used as a starting point for knowing the fiscal health of your business. The balance sheet shows you the summary of key financial information on a specific date or period of time. The balance sheet provides you a view of current and long term debt, asset management, net value of your small business and the comparative data where you can see changes in accounts receivable/payable, equity, inventory, retained earnings and cash.

Income Statement

The income statement is also referred to as a profit and loss statement. This is a useful too because it provides an overview whether or not your business is going well. The income statement also gives you a break down of the revenue generated and the expenses incurred. You will know you have a well-maintained income statement if it provides details of the profit of your business and the steps you should take to increase profitability.

Tamara Deterding

Written by : Tamara Deterding