Often, I meet with business owners that are embarrassed that they don’t understand the basics of Finance. If you don’t understand the differences between the financial statements you’re given, how can you use that information to help grow your business?
So, here’s a little refresher course on the three Financial Statements, Balance Sheet, Income Statement and Statement of Cash Flows. They each tell you different things about your business.
The Balance Sheet tells you the status of your business at a point in time.
The Income Statement tells you how your business did over a period of time.
The Statement of Cash Flows tells you how you used money and where it came from.
Here are some quick ideas about what to look at when you see these statements monthly:
These three statements tell you the basics, the summary of what your business has done over that past period – whether a month, quarter or the year. But it is the detail behind those numbers that will tell you what you need to do to grow your business. It is the subsidiary schedules of Inventory, Sales by Product, Margins by Product Group, Prepaids and Accruals, Operating Expenses and how they break down into Operating costs and Cost of Goods sold.
Every client we’ve worked with has specially designed subsidiary reports that help the owner focus on the aspects of his business that are most important to him, his customers and his profitability. If you’re just looking at those three basic statements, you’re missing the detail that allows you to drive your business forward. It’s an old cliché, but very true. The devil is in the details. Without the details, you won’t know what to fix, or whether difficulties in your business might be masked by the success of a particular product line or customer sale.
A proven CFO can help you analyze these statements and help you do the planning that you need.
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