Few entrepreneurs have the luxury of a CPA certification when they go into business. Nor, do they typically want to take time away from turning their ideas into reality by focusing on spreadsheets and financial projections. However, as much as the job is loathed, it is essential for business health. Here are the three “must have” reports to keep your eye on the business’ health.
This is the essential look at your business’ financial health at a given point in time. Many businesses view this statement as the end of their fiscal year. However, it may be essential to monitor this more closely for a start-up until their fiscal stability is better established. The basic formula is liability + owner equity = assets. These assets include both current assets – cash or easily liquidated holdings – as well as fixed assets, such as land, buildings, equipment and other items essential to your business function. Your liabilities include short-term, such as your determined accounts payable items and calculated taxes, as well as long-term liabilities such as loans or investor obligations. Owner’s equity includes any invested capital or retained earnings.
Profit and Loss
Profit and Loss (sometimes abbreviated as P&L) or income statement provides forecasting for projected income and expenses over a specific period of time – monthly, quarterly, etc. These typically cover a few weeks or months and help build your overall balance sheet. It’s typically mentioned that while the balance sheet is a statement, profit and loss is an account. This helps businesses estimate their net profit (operating expenses subtracted from gross profit). One common error is not including all obligations in overhead. These can include insurance and legal investments, overhead repairs, possible increases in property or equipment rental fees.
Cash Flow Statement
This statement is the lifeblood of your daily business. It shows how much income you are collecting through sales, pending receivables and investments in contrast to business expenses including inventory, staffing and general costs of fulfilling purchases. This is an essential calculation to keep management’s eyes on expenditures and potential squeezes. Consult this report especially if you’re looking at a potential job that might require a greater amount of up-front external expenses or additional staffing. If your cash flow can’t support such investments, you may want to review pricing for deposits to help with expenditures.
If you’re not currently reviewing these statements on a regular basis, you’re putting your business investment in jeopardy. Failing to keep an eye on finances sacrificed more than a few great business ideas. Luckily for you, there are professional accounting options to keep these reports current and draw your attention to potential threats. This allows you to focus on report review and decision making, not wading through invoices and accounting software. If you need help tackling these essential reports, contact one of our professionals today.