Many small business owners find financial reporting daunting and it is often left to last after generating new business, networking, marketing, social media and of course providing your products and/or services to customers. But the financial reports will tell the true story of your business and how well (or not so well) it is going.
Knowing the financial health of your small business is empowering.
Your financial reports will let you know if your business is making a profit, lets you know if you have (or don’t have) enough money to pay your upcoming expenses, it helps you obtain funding to grow your business, set your business goals, plan for improvements and assists with making better business decisions.
Your numbers will help you determine the actual costs to provide your products and/or service, which will help you set your prices. The numbers will highlight areas where perhaps you have gone wrong in your business, maybe there is a product you offer that doesn’t sell well and should be eliminated. And the numbers lets you know who you may need to be chasing for payment of your products and/or services.
Even if you use a bookkeeper or accountant to manage your financial records and prepare your financial statements, understanding the basics of business finance and having a good overview of your business numbers makes you feel confident enough to ask them the right questions.
Empower yourself. Always know how your business is tracking financially.
You should be using both financial statements and financial forecasts.
Financial statements are historical and it shows how your business has been performing.
Financial forecasts look to the future and show how you think your business will perform over time.
The 3 key financial reports for your business
Cash flow forecast
A cash flow forecast is an estimate of when cash will flow in and out of your business over a period of time, usually 12 months and it is broken down into monthly amounts. It will include all your projected income and expenses when they are due.
Profit and loss statement
The function of a profit and loss statement is to total all sources of your business revenue and then subtract all expenses related to the revenue, to calculate your net profit or loss.
A balance sheet is a statement showing the business assets (what the business owns) and liabilities (what the business owes) and the value of the owner’s equity (or net worth of the business), which is represented by the following formula: owner’s equity = assets – liabilities. It is called a balance sheet because owner’s equity must equal assets minus liabilities.
Stop being scared of and avoiding your small business numbers. Empower yourself by knowing and understanding your business financial statements.