Numbers every business owner should know: A Quick Guide Part 1 Financial Statements

There are certain numbers every business owner should know. They are like the burglar alarms of your business. They alert you when the company is leaking money. 

Just looking at your production and overhead costs is not enough to inform you which products and services are profitable.

Many people live in fear of numbers. The good news is nowadays, there are systems that actually do all the heavy lifting for you. Think about your accounting software, email service provider, or CRM.

This  two part blog is discussing two sources of numbers you should keep track of in your business – financial statements and KPIs. Part 1 will discuss Financial Statements, Part 2 KPIs.

Financial statements

Financial statements are summaries of your business over a certain period. 

Think of them as a satellite view from 30,000 feet. They give you a good overall idea of how your business is performing.

Examples of financial statements include:

• Balance sheets.
• Profit loss statement.
• Cash flow statement.
• Budgets.

Balance sheet

Your balance sheet is a financial statement that contains your assets, liabilities, and equity for your business.  You’ll find your bank accounts, loan balances, depreciating assets and similar BIG items on your balance sheet.

As a small business owner, you are unlikely to spend much time on this document.  Reviewing your balance sheet before making any large purchases, monthly as part of your month end processes and working with your CPA/Accountant/Bookkeeper annually to make sure it is accurate is sufficient in most business situations.

Profit and loss statement

This is a statement detailing how much you made, spent, and lost during a specific period. Unlike a balance sheet, a profit and loss statement is a day-to-day operational report.

Information for your profit margin, overhead rates, payroll costs, etc., is going to come from this statement.

After studying a profit and loss statement, you will know if you are making enough to keep the business running, or you are losing money.

These are definitely numbers every business owner should know, or try to understand at the very least.

Cash flow statement

A cash flow statement shows how much money is flowing in and out of the business over a certain period. By looking at your cash flow, you can actually find out how much spendable cash you have.

82% of all small businesses that fail have a cash flow problem. That’s how important this document is.  Many businesses face a cash flow timing problem, but don’t recognize the issue in time to correct it.

Budgets

A budget is a beautiful thing that helps you plan. It is also something everyone hates doing.

Yet it is absolutely necessary for running a business. You need to be able to plan operations. For that to happen, you need to make sure there is money to do it.

Another important thing to keep in mind a budget is a guide for your business.  But like in life if circumstances change the budge can be re-evaulated and adjusted to accommodate

Numbers every business owner should know – how are you keeping up?

Not sure what numbers are essential? Are you overwhelmed?

It’s okay. Numbers are not easy. If you are struggling, I’m always happy to help. Book a call today.

Up Next KPIs!