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Key Financial Statements for Every Business
Regardless of size or industry, your business should have three key financial statements. Owners, managers and stakeholders can use these reports to make informed decisions. The three financial statements every business should have include the income statement, the balance sheet, and the cash flow statement. Let’s look into each of these statements to understand how they provide valuable insights into the financial health and performance of your business.
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The Income Statement or Profit & Loss (P&L)
The income statement, also known as the profit and loss statement, summarizes the revenues, expenses, and net income or loss of a business over a specific period. It shows how much money the business has earned and spent during that time. The income statement helps you understand the profitability of your business and – more importantly – identify areas where costs can be reduced or revenue can be increased.
The Balance Sheet
The balance sheet gives you a snapshot of a company’s financial position at a specific point in time. It lists the assets, liabilities, and shareholders’ equity of the business. The balance sheet helps you understand the overall financial strength of your business. As well as understand its ability to meet short-term and long-term obligations. Reviewing the balance sheet over time can provide insights into your business’s growth and financial stability.
The Cash Flow Statement
The cash flow statement tracks the inflow and outflow of cash within a business over a specific period. It shows how cash is generated from operating activities, investing, or financing activities. That cash flow statement can tell you whether your business has enough cash to cover its expenses, repay debts, and invest in growth opportunities. Cash Flow is often overlooked but is crucial for business success. Profits are important, but a company that runs profitably but doesn’t have positive cash flow can run into serious trouble when it cannot pay the bills on time.
Three Financial Statements That Work Together
These three financial statements are interconnected. Together, they provide a comprehensive view of your business’s financial performance. They help you monitor your revenue, expenses, assets, liabilities, and cash flow, enabling you to make informed decisions about pricing, cost management, investment, and financing. By regularly reviewing updated financial statements, you can identify trends, spot potential problems, and make adjustments. That will allow your business to be sustainable – and provide income for the owners and jobs for the employees for years to come.
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