At Accountfully, we advise business owners through all stages of growth. Whether you’re just getting an idea off the ground or considering a second office, we advise you at the highest level to help make smart decisions that will keep your business healthy and growing.
Perhaps you’ve been in business for a few years and had some success — kudos to you! That is no small feat. A quarter of all new US businesses fail in their first year according to research published this year by Statistic Brain. Why does this happen so frequently? It may sound overly simple, but many times it is a matter of finances: simply not understanding them or just avoiding them altogether.
While your business generates all sorts of numbers and reports, there are three financial statements a business owner should know with clarity:
Your balance sheet is a window into the business’s financial health. It breaks down assets, liabilities and equity and summarizes key financial information on a specific date of the calendar year. It’s a good indicator of company stability and helps potential investors understand the strength of your business. Should you ever want to incorporate or sell, balance sheets provide the net value of the company, current and long term debt and asset management. It is a powerful tool.
Profit and Loss Statement
Your profit and loss statement provides insight into net income over a specified period of time. Often generated monthly, quarterly or annually, this statement includes all relevant revenues, expenses, gains and losses. It also provides information about your business’s ability to generate profit in the future — something investors and partners are always interested in.
Cash Flow Statement
Your cash flow statement reflects the amount of cash and cash equivalents entering and leaving the business. Investors like to see this statement because it offers the most transparent view of financial health. It shows operating, investing and financing activities of your business and can help predict how much cash it can generate.
Tip For Growth: Knowledge is power. Understand your business’s numbers to produce successful meetings with potential investors and interested partners.
Originally published at accountfully.com.