Do you keep your business receipts in box until tax time? If so, you’re missing out on your most valuable business asset: your financial information.
The Balance Sheet
The balance sheet lists what your business owns, owes, and what it is worth. This financial statement will answer questions like, “Can I pay my short- term debts?” or “Have I accumulated too much debt?”
The Income Statement
The income statement will tell you if you have generated a profit or loss during a period of time. A comparative income statement will compare one time period to another. For example last year to this year, or last quarter to this quarter. Comparative statements can help you flag inconsistencies in your expenses or peak times for sales. If you’ve had an increase in sales but it hasn't changed your profit, the income statement can help you identify why.
It is important to note that the income statement will report a profit or loss regardless of whether or not expenses have been paid or revenues have been collected. Therefore, profit on the income statement does not necessarily mean you have money in the bank.
The Cash Flow Statement/ Report
Because your income statement will (most likely not) reflect your bank balance, another vital report is the Cash Flow Statement. This report will answer the question “Where did my money go?” The Cash Flow Report predicts when cash will flow in and when expenses will flow out. It includes a cumulative cash balance which tells you how much money should actually be in your bank account by the end of that month.
Cash is the life blood of your business. Making sure you can cover costs while you wait for customer payments is a vital part of financial management. It should be noted that many great businesses have folded due to cash flow problems.
Along with the cash flow report, your budget is a financial road map. It predicts your busy and slow months and help you prepare accordingly. Staying within your budget keeps your business finances on track and in balance.
Another valuable piece of information is your break even point. Most businesses have variable and fixed costs. Variable costs increase with sale volumes, while fixed costs stay the same regardless of sales. The breakeven calculation tells you how much of your product you have to sell to cover your fixed costs. For example, you purchase a unit for $7.00 and you sell it for $10.00. You make $3.00 of profit for every unit you sell. If your fixed costs are $300.00, you breakeven when you sell 100 units.
Your accounting system contains the most valuable information you have available to you as a business owner. Your financial reports reveal how your business is doing and why. When you know your numbers, you can prepare future goals, plan for down times, and you’re more likely to stay on track. Most importantly, when you know your numbers you will be able to identify and address any issues before they become a crisis.
We would love to help you get your data working for your business. Give us a call, we provide a variety of solutions.