For most small business owners, paperwork is probably the least exciting thing you do. However, it’s one of the most important because it keeps you on top of your finances and ensures that your company is on track to meet its goals. Otherwise, it’s like trying to navigate the ocean without a map.
Some of the key reports that you should review regularly include the Profit and Loss (P&L) statement, the Balance Sheet, and the Cash Flow statement.
Profit and Loss Statement.
The Profit and Loss (P&L) statement is the most important financial report for small business owners to review and analyze on a regular basis. It should be done every month because it provides valuable information about the financial health and performance of your business.
The P&L statement is essentially a summary of your business’s revenues, expenses, and net income (or loss) over a specified period of time. By reviewing this report, you can see exactly where your money is being spent and where it is coming from, which can help you identify areas where you may be overspending or not generating enough revenue.
In addition to providing insight into your business’s current financial performance, the P&L statement can also be used to compare your current performance to previous months, quarters, and years. This allows you to see how your business is progressing over time and can help you identify trends and patterns that may be impacting your business’s financial health.
Overall, the P&L statement is an essential tool for managing and growing your small business. Its valuable insights into your business’s financial performance and helps you make informed decisions about its future direction.
The Balance Sheet is another key financial report that small business owners should regularly monitor. This report provides a snapshot of your business’s financial position at a specific point in time. It can be used to gain valuable insights into your business’s overall financial stability.
The Balance Sheet lists your business’s assets, liabilities, and equity. Assets are the things that your business owns, such as cash, accounts receivable, inventory, and property.
Liabilities are the things that your business owes, such as loans, accounts payable, and taxes.
Equity is the difference between your assets and liabilities. It represents the value of your business’s ownership.
Your Balance Sheet reflects how much your business is worth and whether it has the financial resources to meet its obligations and achieve its goals. You can also use this report to identify potential financial issues, such as excessive debt or insufficient cash reserves, and take steps to address them before they become a problem.
It’s also a useful tool for comparing your current financial position to previous periods, allowing you to see how it has changed over time.
The Balance Sheet is an essential report for small business owners who want to stay on top of their business’s finances and ensure that their company is financially healthy and stable.
Cash Flow Statement.
The Cash Flow statement is another important document because it provides information about the inflows and outflows of cash into your business and helps you to identify potential cash flow issues.
The Cash Flow statement lists your business’s cash receipts, cash payments, and net changes in cash over a specified period of time. You can see where your business is generating cash and where it is spending it.
Comparing current performance to previous periods can help you identify trends and patterns that may be impacting your business’s financial health.
Monitoring the Cash Flow statement is an essential tool for small business owners to ensure that their company has the financial resources it needs to grow and succeed.
If you aren’t a “numbers” person, the idea of regularly looking over these statements may seem a bit daunting. However, if you’re serious about your business being successful, you’ll do well to dig deep and take a little time to familiarize yourself.
Once you understand how the statements are structured and get into a habit of giving them a look on a regular basis, you’ll come to see how invaluable they are. It would be hard to make informed decisions about the growth and direction of your company without them.