Introduction to Financial Statements

You got into business for a lot of reasons.  One of the primary reason most people are in business is to make money.  One of the most important tools you have to understand how your business is doing is an accurate set of financial statements. With a good set of financial statements you will be able to uncover a lot of valuable information on the health of your business.  You will discover what you are doing well and what you need to improve.  I frequently tell people that you have to manage your business by the numbers.  This enables you look at objective data and make decisions based on facts.  People lie, but numbers do not.

For a number of people the financial statements can be daunting.  They don’t understand what they are looking at.  This can easily solved with some education.

The basic set of financial statements that you want to review on a monthly basis are the balance sheet, income statement and statement of cash flows.

The balance sheet will tell you what your company is worth.  It tells you what you own, what you owe and what you’re worth.  All three items are very important.

The income statement tells you how much money you made, how much money you spent and how much money you have left.  If you lost money during a time period it will also tell you that.

The cash flow statement tells you where all the cash came from and where all the cash went.  Cash flow statement in my opinion is one of the most valuable financial statements.  It is also one of the least read and least understood financial statements.