The Reports Every Small Business Should Use on a Regular Basis
December 23rd, 2009 Filed under: Uncategorized — Accounting AuthorIt is said that “when performance is measured, performance improves. When those measurements are written down and analyzed the rate of improvement increases.” (Thomas S. Monson) So it is with your business. There are three reports every small and medium size business should know and use on a regular basis. They are a Profit and Loss Statement, a Balance Sheet, and a Statement of Cash flow.
A Profit and Loss Statement (P&L) is the most important report that all business owners need to receive on a regular basis. This report, as the name hints, shows you whether you are running your business at a profit or at a loss. The two accounts that are presented in a P&L are Income and Expenses accounts.
A Profit and Loss Statement is done for specific periods of time. Most are done on a year-to-date basis. But, depending on the software you are using, you can manipulate the report to show comparisons of previous periods (years, months, weeks, etc…). As you look at the way your company’s Income Statement fluctuates from period to period you are able to make comparisons and find indicators of your company’s financial health. There are many indicators that you can look at (mostly financial ratios) that can help you manage your business more efficiently. A Profit and Loss Statement has a couple of other names that you may be familiar with: Income Statement, and Statement of Operations. They all refer to the same thing.
The important thing to remember about an income statement is that it represents a period of time. This contrasts with the balance sheet, which represents a single moment in time.
A Balance Sheet lives up to its name as a report that shows an organization’s balances. It shows the balances of all the organization’s bank accounts, credit card accounts, loans, inventory, payroll liabilities, ownership equity, petty cash, etc… The three accounts that are presented in a balance sheet are Assets, Liabilities, and Equity. There are many ratios and indicators that one can pull from a balance sheet to measure the company’s financial health. This report is the only one of the three basic reports that is only a snapshot of a single moment in time, or a specific date.
A Cash Flow Statement or Statement of Cash Flows is usually a pretty confusing report for many small business owners. It can be difficult to read. But, once you understand how to read a Statement of Cash Flows, it can become a very valuable tool for your management of your business, and the ability of your business to pay it’s current bills and sustain it’s operations.
This report shows how changes in different accounts from the balance sheet and profit and loss affect cash flow, or the liquidity of the business. The report is broken down into three sections: operating, investing and financing activities.
It is important to always know where you are at in your business finances. If you don’t know where you are at, then how do you know if you are winning or losing? Do you get these reports on your business on a regular, consistent basis? You should!
Best Regards,
Chris Webb
YOUR PERSONAL ACCOUNTANT
http://www.yourpersonalaccountant.org
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2 Responses to “The Reports Every Small Business Should Use on a Regular Basis”
By Tyler on Dec 23, 2009 | Reply
A great primer for business owners, Chris. I am too often shocked at how people will risk their money and labor on a business endeavor and not take the time to figure out if they are making any money off it!
Another matter, I’m interested in getting in touch with Mike to see if we could collaborate on our blogs but I can’t find the contact information. I would love to get in touch.
By Company Registration Hyderabad on Dec 28, 2009 | Reply
How to provide for provision in accounts under cash flow basis guarantee of money back given to customers, if not satisfied with the product.