Take Your Small Business’s Financial Temperature With Corporate Accounting Statements
You don’t need to be a corporate accounting genius to use its core principles to keep your finger on the pulse of the money flowing in and out of your small business’s bank account. With the standard financial statements used by sole proprietors and mega-corporations, you can see where your assets lie, who you owe and who owes you, and whether you’re turning a sustainable profit.
What Are the Basic Corporate Accounting Financial Statements?
Your small business’s “financials” consist of all its monetary transactions, summarized and organized on three specific statements that allow you to determine your company’s current financial health and trajectory quickly.
1. Balance Sheet
Every company has an actual worth and cost of doing business, and the details vary widely with industry, size, and history. A balance sheet totals and categorizes your assets, or what you own, and your liabilities, or what you owe. Monitoring the difference between the two can help you stay on track to increase your equity by reducing your debt.
2. Cash Flow Statement
Cash flow is your bank account activity, and it consists of three types of revenue. The first is operational and encompasses the daily transactions of sales, inventory purchasing, and the overhead of keeping your doors open. Investment activity relates to long-term improvements and can include purchasing and selling property, equipment, or other businesses.
3. Profit and Loss Statement
This report is like a snapshot that captures all incoming and outgoing revenue and lists and points to where it comes from and goes. The P&L’s obvious allure is the instant side-by-side comparison of how much your business is making and losing. The real value comes when you use it to analyze your current financial standing, make projections, and track your company’s progress.
What Can These Reports Tell You?
Lasting financial success is more nuanced than ringing high sales and making large daily deposits: You need to know if you’re in danger by spending more and more to stay afloat with a shrinking profit-and-loss margin.
Not all equity is the same; your balance sheet identifies the levels of fixed and liquid assets that translate into long-term financial security and the short-term ability to handle emergencies. Furthermore, detailed aging receivables reports can help you time a business loan application to coincide with a particularly strong cash flow as large invoices come due.
No matter how much trouble you have with understanding your financials at first, keep reviewing the corporate accounting reports. Eventually, the numbers will fall into place, and you can use them to better drive your small business into the future.