I get it – a lot of business owners are NOT into the whole bookkeeping thing. Which is great for me. I love keeping small business books organized and your cash flow positive! When working with my clients, I draft three financial statements for them each month so we can monitor how their business is doing. These 3 statements give you an overall check-in of the health of your business. When clients first come to me, they sometimes have no idea what these statements mean or why they need them. If you’re wondering what monthly financial statements are or why you need them, I’m here to teach you!
Profit & Loss (Income) Statement:
This one my favorite.
Why it is used: Your Profit & Loss statement shows just that, your profit or your losses. It is a gathering of all your income minus all your expenses. The first major line should be your total of all income minus your total of all expenses ending with your net income (aka profitability.) Time frame of measurement: This can be anytime you choose, usually month-end, quarterly and you always want a year-end statement.
Balance Sheet Statement:
Why it is used: This statement shows your financial standing regarding Assets, (things you own, cash, equipment, inventory, etc.) Liabilities, (things you owe, loan debts, accounts payable, taxes owed, etc.) and Equity (Total Assets- Total Liabilities)
Time frame of measurement: This is generally a snapshot or pulled a particular point in time (usually quarterly and always year-end) However if you are working towards a goal of decreasing your liabilities it is a good idea to pull this report at least on a monthly basis.
Cash Flow statement: aka the money movement statement. This statement shows you where all your cash is going. Ultimately what you want to look at is if your cash from operating activities is greater than your net income. This means that you are able to pay for your operating expenses with cash and still have a profit.
To sum it all up. A profit and loss statement-shows if you are profitable. Those profits (net income) roll into the balance sheet. The balance sheet shows your debt to equity ratio. How much you owe vs how much you own. Cash Flow statement-Shows you where your money is going.
Now you know why you need all these statements – how are you gonna start implementing them? Send me an email if you’d like to schedule a consultation! Have questions? Email me those, too!
