If Cash is King, Financial Statements are the Keys to the Kingdom
As small business owners, we are constantly looking at our bank accounts - reviewing bills to pay and trying to remember which customers still need to pay us. It is essential to ensure we have the funds needed for expenses and growth. It is a daily chore to review bank balances, statements, and transactions. Without cash in the bank, our business may abruptly stop. We all know Cash is King.
Reviewing Financial Statements (income statement, balance sheet, and statement of cash flows), provides a holistic view of your business. These statements help to validate the decisions you make and cultivate ideas for the future.
An Income Statement shows the operational worth of the business, presenting a period to date aggregate of sales and expenses. Sales from certain products can be more profitable than others and focusing on those high-profit products can boom the business. On the contrary, expenses with no tracking or reporting, tend to be higher than perceived which may create a false belief that strategies are working or results are better than they actually are.
The Balance Sheet shows the state of the business at a specific period in time, identifying the business assets and debts. This vital report clearly identifies the liquidity of the business. It is an amazing report that can be used to identify red flags and provide warnings to the business. On the positive side, it can help you see the success of the business and validate plans for growth and expansion.
A Statement of Cash Flows shows where the money goes and how was it used by categorizing the intake and outflows during a specific period of time. This report directly identifies the business’ cash usage and ensures daily operations are adequately funded. Were the decisions made in the financing/investing/operations positive or negative cash flow, and how much? No bank statement easily shows this, which is why cash flow statements are crucial to understanding your business.
Mitesh Gandhi
Advisor
Financial statements not only tell a story of the business, but they support future ideas. Small business owners who do not have these statements are flying blind, potentially making decisions that could lead to lower profits or failure. Financial statements rule the kingdom. Demand these reports from your accountant or bookkeeper on a regular and consistent basis. Last and most importantly, do not be scared of understanding these reports. Ask questions; it is your business at stake.
Reach out to Mitesh if you need any help running your kingdom!