Financial statements can be powerful management tools. They can also be confusing.
Read on to learn more about key aspects of your financial statements and how understanding your financial statements can lead to better business decisions.
What’s In a Financial Statement?
Financial statements let a business owner know where their money is. That includes where it came from, where it went, and what their current financial standing is.
This information is demonstrated using a balance sheet, an income statement, and a cash flow statement—the three main financial statements.
At a glance, these documents contain the following information:
Assets – what you own
Liabilities – what you owe
Shareholder equity – ownership value
Gains and revenues – total sales or income
Expenses and losses – all costs of doing business
Net income – amount remaining after after deducting all cost of doing business
Cash flow – sources and uses of cash
Cash – cash on-hand at the beginning and end of a period to use in the business
Each statement contains different information about the business, and each piece of business finance information is as important as the next in helping a business owner make more informed decisions.
Why Are Financial Statements Important?
The importance of being engaged in and familiar with your business’ financial statements cannot be stressed enough.
Without understanding these statements, it’s impossible for business owners to know if they are making money, if they have the funds to keep up with their business expenses, and to plan for any kind of future growth or opportunity.
A financial plan is a crucial part of any solid business plan. Becoming very familiar with your business’ financial statements is one of the first steps in knowing how to create your financial plan.
Getting Help with Your Financial Statements
If you’re struggling to make sense of your business’ financial statements, the Missouri Small Business Development Center can help!