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Financial Statements

Financial Statements Image from https://bit.ly/3uwrSij

4 Key Financial Statements You Should Prepare For Your Business

Nereah Obimbo by Nereah Obimbo
May 9, 2021
in Business, Business Tips, Entrepreneurship, Finance, Money, Running a Business
Reading Time: 3 mins read
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Financial statements are about the least sexy part of running a business, but they are the bedrock of successful businesses. Financial reports provide critical information about the state of the business not just externally but also internally to guide in decision making and planning. At a glance, proper reports will indicate a company’s health helping you know how things are going and what changes need to be made if any. How are your sales, profits, expenses, cash flow? Where is your money coming from? Where is it going? Where is it now? Financial records provide critical in-depth insights.

1. P&L – Profit and loss (Income) statement

A profit and loss (P&L) statement is also referred to as an income statement or statement of operations. This financial statement lists your revenue and expenses indicating whether or not your business is profitable. It shows revenues generated during a specific period, the costs incurred in order to generate said revenues, and the resulting profits or losses. These numbers will guide you on pricing, expense management and may even influence your marketing efforts.

2. Balance sheet

The balance sheet is a financial picture of a business as of a specific date and is one of the most important financial statements. It shows you if your assets balance with your liabilities at a specific moment in time. Assets are what a company owns and liabilities what it owes. This financial statement is a snapshot of your business’s financial health as pertains to the balance of assets and liabilities. With your assets on one side and your liabilities and equity on the other, if your liabilities are more than your assets you’re losing money and need to evaluate.

3. Cash flow statement

As the name suggests, a cash flow statement shows how cash is flowing into and out of your business in three main categories, operations, investment, and financing. It essentially shows which areas in your business are generating the most cash and which ones are spending the most cash. This financial statement blends information from both the P&L statement and the balance sheet and is one of the most important reports of them all. It provides useful information when calculating upcoming budgets.

4. Accounts receivable ageing report

The accounts receivable report, commonly referred to as the A/R ageing report is a list of overdue customer invoices. It shows which customers owe you, how much, and how late it is so that you can follow up for the purposes of debt collection.

Business owners should run and review these business statements periodically if possible with an accountant who can then offer advice on how they can improve their financials. Even if one does not have an accountant, it is important to track what is happening and be conscious about the true state your business is in so that you can make profitable decisions. These reports help you know what is making you money, what is costing you money, what you own, what you owe, what is owed to you, how much you are making, how much you are spending… and how should you proceed.

Here’s a piece for business people on the 3 critical hires in a startup.

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  • Nereah Obimbo

    Writer. Filmmaker. Lover of life, words and rational thinking #Activism.

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