Every business produces three core financial statements. Together they tell the complete story of your financial health ? but only if you know how to read them.
The Income Statement (Profit & Loss)
The income statement shows revenue, expenses, and the resulting profit or loss over a period. Start at the top with total revenue, subtract cost of goods sold to get gross profit, then subtract operating expenses to get operating profit (EBIT). Below that, interest and tax leave you with net profit ? the bottom line.
Key question to ask: Is revenue growing faster than expenses? If not, investigate which cost lines are expanding.
The Balance Sheet
A snapshot of your financial position on a single date. Assets = Liabilities + Equity. Current assets (cash, receivables, inventory) should comfortably exceed current liabilities (payables, short-term debt) ? this is your current ratio, and a ratio above 1.5 is generally healthy.
The Cash Flow Statement
This reconciles your profit with your actual cash movements. It has three sections: operating activities (cash from your core business), investing activities (equipment purchases, asset sales), and financing activities (loans taken or repaid). A business can show profit but negative operating cash flow ? a warning sign worth investigating.
We prepare monthly financial statements for all our accounting clients so you always have a clear, current picture of your business. Talk to us about our bookkeeping and reporting packages.