Financial reports

You might think of financial reports as a series of X-rays or scans that look at your business from different perspectives. While larger companies may produce dozens or even hundreds of reports, there are just a few really critical ones that any business needs.

Balance sheet: A company’s balance sheet shows its assets, liabilities and equity at a specific point in time.

• Company assets include cash on hand and accounts receivable, or amounts you are owed from customers, as well as fixed assets, like equipment, less the depreciation or costs you write off against revenue you earned from using the equipment.
• Company liabilities include accounts payable or amounts you owe to vendors, loans from banks, as well as any taxes that are due.
• The company’s equity is the amount of your own money you put in plus all profits the company made over time.

A balance sheet is a bit like a financial health report. If your liabilities are greater than your assets or you have negative equity, the business’s financial health is probably poor. But if you have little debt compared to your assets and you own most of those assets, the business is probably in good financial health. But, the balance sheet is only part of the story.

Income Statement: Your income statement, which is commonly known as your profit and loss statement, shows how well your company is doing and, specifically, whether your business is making a profit. The statement reports how your company makes and spends money, shows your total sales or revenue, costs of sales, gross profit, other expenses and net income for a period of time. Your gross profit is the total amount of your sales minus your direct costs in terms of labor, supplies, and other expenses to generate those sales, while your net profit is your gross profit minus the all other expenses of running the company, such as rent, advertising, interest or income taxes.

Cash Flow: Almost any small business owner will tell you that the number-one concern, day in and day out, is cash flow, or ensuring that there is enough money in the bank to meet expenses and ideally have money left over as a profit. Even companies that are profitable may have cash flow problems, since you may need to purchase inventories or supplies, pay employees and keep loans current before you receive payments owed by your customers.

You can help to improve your cash flow situation by collecting payments or money due into the company as quickly as possible and extending payments you owe as long as you reasonably can without incurring late charges or hurting your credit rating.

Cash Flow Forecast: This report should be the lifeline of your company and is a history of the cash you’ve received as well as a forecast of your cash needs for at least the next three months. Preparing this report will help you predict how much cash you have in reserve, when you can purchase new equipment, and manage repayment to lenders or yourself. It will also help you recognize a potential shortfall and the need to borrow money or put your own cash into the company. By reviewing your actual sources and uses of cash over a period of time, you’ll be better able to predict the future.