Accounting: just saying the word may make you shiver. There is much meticulous work when it comes to small business accounting, and most small business owners don’t have the time or the knowledge to keep their own books.
However, whether or not you manage your own books, there are three important financial accounting statements that you should be reviewing and analyzing every month. The following accounting statements are incredibly important to your bottom line. Get to know these statements and how the numbers and analysis can help you make the best financial decisions for your company.
Statement Of Cash Flows
This document tells you exactly where your money came from and where it went. Did you take out more loans or borrow from your line of credit more often than you thought last month? Was your sales revenue enough to cover payroll and all other expenses? How much did you spend on loan payments? These are the types of questions you can answer and discover your cash movement process.
This information is self-explanatory. It tells you how much income you earned and how much you spent on expenses. More specifically it tells you how much it costs you to sell your goods or services (or Cost of Goods Sold), how much you spent on administrative and other operating expenses, and ultimately the profit (or loss) as a result of all that action.
This document is really just a ‘snapshot’ of your business as it stands that precise moment. Where the other statements are a result of a period of time, the balance sheet tells you at the moment how much cash is on hand, the value of your company assets, and how much debt is still outstanding. When you subtract liabilities from assets, you ultimately get your own equity and what it is currently worth in the business.
Too many small business owners are surprised when they speak with their accountant or bookkeeper. Don’t make the same mistake, and instead, take the financial reality of your business right into your own eyes and hands.