Let’s face it, nobody goes in to business for themselves not thinking about making money, but the reality is that thinking about making money is not the same as making sense of money as it pertains to the health of your small business. Proper documenting and tracking of financial reports can be the difference in hanging a “We’re Open” sign and a “Closed for Business” sign. Here are three of the most important financial statements for small business owners:
Balance Sheet: In the simplest of terms, a balance sheet will reflect: Liabilities + Owner’s Equity = Assets. Your business obligations can range from short-term debts, like taxes, to long-term debts, like merchant cash advances or loans. These obligations, as well as those you have with suppliers (your electricity supplier) or creditors, are your business’s liabilities.
Your current and fixed assets would be any purchases you have made for your business, like a new sign or an industrial oven. These assets also include any money that is owed to you by clients.
Your equity is any earnings or invested capital that your business has retained.
Income Statement: This report is commonly referred to as the profits and loss statement. It provides both a snapshot and forecasted look at how healthy your business is based on your reported sales and expenses. You can also leverage your past performance to identify any practices that you have consistently done well or definitely need to improve.
Cash Flow Statement: This report can be a deal breaker for your business. If you want to know how much money is coming into your business and how much money is flowing out of your business, this single report can tell you exactly that. A monthly cash flow report will give you insight on any hidden deficits in your cash flow. It will contain itemization of expenses and purchases you make, as well as any other instances where money transfers from your business.
You can find templates for these financial reports here from the U.S. Small Business Administration.