The What
This report shows a company’s assets, liabilities, and owner equity or capital on a particular date. This is a snapshot in time, not a report that shows over a period of time.
3 Reports That Will Change Your Business For The Better
If bookkeeping isn’t your jam, opening a financial software application can prove a bit overwhelming with the amount of data available. Data is decidedly awesome – but it can prove daunting to know what, exactly, to do with it all.
A wealth of knowledge is certainly there, but even if you know what reports to run, do you know why you need them? Here, we break down those reports and what they mean so you can report with confidence – or hand them over to someone for whom bookkeeping is, in fact, their jam.
Balance Sheet
The Why
Just because the P&L shows the company is ‘profitable,’ it doesn’t necessarily mean the business is in good shape.
Often, the balance sheet is overlooked but is actually one of the most – if not the most – important financial statement. A company can be profitable while incurring a lot of debt.
Debt means restricted cash flow and without positive cash flow, businesses fail. The balance sheet can be used to identify trends and make more informed financial accounting decisions. It’s also important to lenders as they will use it to determine a company’s creditworthiness.
Statement of Profit & Loss
The What
Also known as an Income Statement or P&L for short, this report shows a company’s income and expenses for a particular time period, though monthly and annually are the most common times reviewed.
The Why
The P&L shows the performance of the company, summarizing the total revenues and expenses incurred by the business to show profitability, such as net income or net loss over a specified period of time, usually a month, quarter or year.
The Income Statement is used internally and externally to evaluate profitability and help assess the level of risk for an investor or creditor. In order to have a viable and valuable company, revenues must exceed expenses.
Cash Flow Statement
The What
This report shows how changes in balance sheet accounts and income affect cash and cash equivalents.
The Why
This report helps inform long-term decisions and the best use of this report – aside from seeing where changes in cash and other cash assets are – is to help estimate future cash flow which will assist with budgeting and decision-making.
As a business owner, you know it’s critical to have monthly and annual reports of financial data. They allow you to effectively run your company, enable you to better analyze operations, and help guide business decisions so you can get back to doing what you do best: Growing your business!
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