Financial Statements. I hope you’re not shaking your head with dread when I mention this topic. I know it’s not always exciting to review the numbers, but keeping an eye on the bottom line is key to maximizing profits.
If you read and follow these 3 Financial Statements, you can identify where your business can improve.
- Balance Sheet – presents a financial position of a company at any single point in time. It is the financial picture for today (or last month, last year etc.). The Balance Sheet has two columns, one side is the assets (what you own) the other liabilities (what you owe). There is a double entry system which keeps everything even on this statement. Credits=Debits, Assets=Liabilities
- Income Statement – presents the performance of a company over a period of time. It shows the Net Income/Loss in relationship to the Net Change in Assets/Liabilities. This relationship between the two is a company’s value. Typically given in an annual format, it can also be called the Profit and Loss Statement (P&L)
- Statement of Cash Flows – presents a fuller picture of a company’s source and use of funds. It details the Income and Expenses over a period of time.
It’s been said that “Accounting is more of an Art than a Science” which I agree with. While the numerical calculations are scientific, the qualifying and categorizing of dollars is subjective. The trained professional accountant knows where to put the numbers to decrease taxes and increase income.
This post is a wake-up call to go and look at your Financial Statements. I know from my own experience that it can be confusing to review these reports. It can seem like mumbo-jumbo, but ask your accountant or bookkeeper questions. Use your financial team for their expertise.
Study your cash flow. Look at the liabilities on the balance sheet. Are you carrying expenses that can be delayed? Are you allocating enough cash today for expenses next month when you know your income will dip. Forecast the next 2 months of sales, budget your expenses, adjust your production or marketing activities accordingly.
Take the time and do it – you’ll find more profit! Kay Peck
