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Running a small business is both exciting and challenging. One of the biggest challenges is managing the finances. To make smart decisions and keep your business on track, you need to understand some key financial reports. These reports give you a clear picture of where your business stands and help you plan for the future. Here are five financial reports every small business owner should know about.
Key Takeaways
- A balance sheet shows what your business owns and owes at a specific time.
- An income statement tells you how much money your business made and spent over a period.
- A cash flow statement helps you see how money moves in and out of your business.
- An accounts receivable aging report lets you track who owes you money and how long they’ve owed it.
- A budget vs actual report compares your planned budget to what you actually spent and earned.
1. Balance Sheet
A balance sheet is a financial statement that gives a snapshot of what a company owns and owes at a specific point in time. It lists the company’s assets, liabilities, and shareholders’ equity. This document is crucial for understanding the financial health of a business.
Assets
Assets are what the company owns. They can be current assets like cash and inventory, or non-current assets like property and equipment.
Liabilities
Liabilities are what the company owes to others. These can be current liabilities like accounts payable or long-term liabilities like loans.
Shareholders’ Equity
Shareholders’ equity is the owners’ claim after all liabilities have been paid off. It includes investments made by the owners and retained earnings.
A balance sheet helps business owners and investors see the financial position of the company and make informed decisions.
2. Income Statement
The Income Statement, also known as the Profit and Loss Statement (P&L), provides a summary of a business’s revenues and expenses over a specific period, such as a month, quarter, or year. It shows whether the business made a profit or a loss during that time. This statement is crucial for both internal stakeholders, like the management team, and external stakeholders, such as investors and creditors.
The Income Statement helps in evaluating the profitability of the business like crazy vegas casino canada. It includes key figures like total revenue, cost of goods sold (COGS), gross profit, operating expenses, and net income. By comparing these figures, stakeholders can assess the financial health and performance of the business.
Here are the main components of an Income Statement:
- Total Revenue: The total amount of money earned from sales or services.
- Cost of Goods Sold (COGS): The direct costs related to producing goods or services sold by the business.
- Gross Profit: Calculated as Total Revenue minus COGS.
- Operating Expenses: The costs required to run the business, excluding COGS.
- Net Income: The final profit after all expenses have been deducted from the total revenue.
Understanding these components can help small business owners make informed financial decisions and plan for future growth.
3. Cash Flow Statement
A Cash Flow Statement shows all the cash coming in and going out of a business over a certain time. It only includes cash transactions, unlike the Balance Sheet and Income Statement, which also include non-cash items like credit sales or depreciation.
The Cash Flow Statement is divided into three parts:
- Operating Activities: This section shows the cash generated or used by the core business operations.
- Investing Activities: This part includes cash spent on or earned from investments like buying equipment or selling assets.
- Financing Activities: This section covers cash flows from borrowing or repaying loans and other financial activities.
One of the best uses of the Cash Flow Statement is to predict future cash flow, which helps in budgeting and making decisions. It also helps business owners, lenders, and investors understand the cash position of the business. For example, lenders look at this statement to see if a business can handle new debt along with its existing debt.
In summary, the Cash Flow Statement is a crucial tool for managing both day-to-day and long-term financial health. It helps you see if your business can cover its costs and plan for future expenses.
4. Accounts Receivable Aging Report
The Accounts Receivable (A/R) Aging Report is a crucial tool for small business owners. It categorizes outstanding invoices based on how long they’ve been overdue. Typically, these categories are: current, 1-30 days, 31-60 days, 61-90 days, and over 90 days.
Regularly reviewing this report can help you identify late payments and take action to collect them. If your business struggles with collecting payments, you might need to check this report weekly. This way, you can spot overdue accounts early and start collection procedures to improve your cash flow.
Here’s a simple example of what an A/R Aging Report might look like:
| Age of Invoice | Amount Due |
| Current | $5,000 |
| 1-30 days | $3,000 |
| 31-60 days | $1,500 |
| 61-90 days | $800 |
| Over 90 days | $200 |
By keeping an eye on this report, you can ensure that your business has the cash it needs to operate smoothly. If you notice a lot of overdue invoices, it might be time to talk to your CPA or financial team about better managing your receivables and streamlining your operations.
5. Budget vs Actual
A Budget vs. Actual report is a crucial tool for small business owners. It compares the actual financial results to the budgeted amounts set at the beginning of a period. This comparison helps identify areas where the business is over or under budget.
Monthly Review
It’s important to prepare and review this report every month. By doing so, you can quickly spot any discrepancies and take action before they become bigger issues. Find more on techleash blog.
Key Metrics
The report includes key metrics such as sales, expenses, cash balances, and debt levels. Automated reports with alerts can make it easier to monitor these metrics on the go.
Benefits
- Helps in making informed decisions
- Identifies areas needing attention
- Assists in financial planning
Example Table
| Metric | Budgeted Amount | Actual Amount | Difference |
| Sales | $10,000 | $9,000 | -$1,000 |
| Expenses | $5,000 | $6,000 | +$1,000 |
| Cash Balance | $3,000 | $2,500 | -$500 |
By regularly comparing your budget to actual results, you can keep your business on track and make adjustments as needed.
Conclusion
Managing the finances of a small business can seem like a big task, but it’s very important. By understanding and using the five key financial reports, you can get a clear picture of your business’s health. These reports help you make smart decisions and plan for the future. Remember, staying on top of your finances is not just about keeping records; it’s about using that information to grow and succeed. Keep learning and stay organized, and your business will have a better chance to thrive.
Frequently Asked Questions
What is a balance sheet?
A balance sheet is a financial statement that shows what a business owns and owes at a specific point in time. It includes assets, liabilities, and owner’s equity.
How often should I review my income statement?
You should review your income statement monthly to track your revenue and expenses. This helps you understand your profits and losses over time.
Why is a cash flow statement important?
A cash flow statement is important because it shows how money flows in and out of your business. It helps you see if you have enough cash to cover your expenses.
What is an accounts receivable aging report?
An accounts receivable aging report shows how long your customers have taken to pay their invoices. It helps you manage your cash flow and identify late payments.
How can a budget vs actual report help my business?
A budget vs actual report compares your planned budget with your actual spending. It helps you see where you are overspending or underspending, so you can adjust your budget accordingly.
What should I do if my financial reports show problems?
If your financial reports show problems, you should investigate the issues and make necessary changes. This might include cutting costs, increasing sales, or improving your cash flow management.
