If we want to make informed decisions about our businesses, we need to understand our financial statements. This means being able to read and interpret the data to make informed decisions about where to allocate our resources. 

While it may not be the most exciting part of running a business, understanding your finances is essential to keeping your business on track and ensuring its long-term success.   In this article, we’ll take a look at what you need to know about reading and interpreting financial statements.

If you ever want to sell your business, you will need three years of good financials to present to a seller? Do you have that?

BALANCE SHEET

A Balance sheet shows a company’s assets, liabilities, and equity at a specific point in time but has the history of the business’s life beyond the number on the report. This information can help understand a company’s financial health and identify trends over time. The balance sheet is the face of your business, what’s it worth, what you owe to others, and all the hard work you have put into your business. Are your total liabilities lower than your total assets? You need to reconcile all balance sheet accounts to make sure at any given time, you make decisions to pay off a loan or sell an asset.

INCOME STATEMENT

Income statements show a company’s revenue, expenses, and profit (or loss) over a period of time: a snapshot for a daily, week, month, or year. This information can help understand a company’s overall financial performance and identify trends over time. Income statement accounts are costs you have control over. You can cut costs, eliminate or set profit goals and see the changes over time. Do you have enough income to pay all your expenses?

CASH FLOW STATEMENTS

Cash flow statements show a company’s cash inflows and outflows over a period of time. This information can help understand a company’s overall financial health and identify trends over time. It does more than measure how much is in your bank account on any given day. Your ending cash amount considers outstanding checks or income, loan payments(which do not fulling show up on your Income Statement), what is due for sales taxes, and other items. If taught how to read this statement, you can make business decisions on solid numbers, not a bank balance.

All three of these financial statements are essential in understanding a company’s financial position. However, they each provide different information that can be helpful in different ways.

Why is the interpretation of these financial statements so important?

– You’ll be able to make informed decisions about your business.

– You’ll understand your company’s financial health.

– You’ll identify trends over time.

Stay on top of your numbers to feel more in control of your business and have a better understanding of where your money is going.

What other tips do you have for staying on top of your business finances? Please share them with us in the comments below! 

Do you have a question about business finances that you would like answered? Send us an email at info@aspenriverfinancial.com, and we may feature your question in a future blog post!’  

Just started your business and are already confused about your income and expenses and how to track them effectively? It gets to be easy! Download the FREE 12 MONTH BOOKKEEPING SPREADSHEET that will have all your income and expenses in one place for tax time. Click here to download it! 

Still, feeling lost when it comes to your business finances? We offer accounting and services that can help – click here to book your free value call with us.