3 Essential Financial Statements for Your Small Business

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3 Essential Financial Statements for Your Small Business

By plester, Former Contributor
Published: August 4, 2014 Updated: May 2, 2016

Accurately tracking financial data is not only critical for running the day-to-day operations of your small business, but it is also essential when seeking funding from lenders or investors to take your business to the next level. In addition, keeping tabs of your finances can help ensure your products and services are priced right, identify what your margins are, determine your cash flow and make filing taxes easier.

Here are three basic financial statements that are important for your small business:

  1. Balance sheet. This statement provides an overall financial snapshot of your small business. As an equation, it looks like liabilities + owner’s equity = assets. The two sides of the equation must balance out.

    There are two types of assets: current and fixed. Current assets include cash or other holdings that can quickly be converted to cash within a year. These may include inventory, prepaid expenses and accounts receivable. Machinery, equipment, land, buildings, furniture and other essentials that you are not planning to sell are considered fixed assets.

    Liabilities can be broken down into current or short-term liabilities, such as accounts payable and taxes, and long-term debt such as bank loans or notes payable to stockholders. Owner’s equity includes any invested capital or retained earnings.  If you captured all of your accounting information correctly, both sides of the balance sheet equation should be equal. Download SCORE’s template to start setting up your own balance sheet.

  2. Profit and loss statement. A profit and loss statement, also referred to as an income statement, enables you to project sales and expenses and typically covers a period of a few months to a year.

    To determine net profit, subtract total operating expenses from gross profit. (Gross profit – total operating expenses = net profit.) Remember that gross profit is calculated as total sales minus the cost of goods sold. Costs of goods sold include things like raw materials, inventory and payroll taxes. Make sure to also factor in overhead costs such repairs, utilities, insurance and legal fees into your operating expenses to ensure your net profit is accurate. SCORE’s profit and loss statement template (.xls) includes all the necessary calculations to help you forecast net profit.

  3. Cash flow statement. This statement highlights how much money is coming in to (cash inflows) and going out of (cash outflows) your business. Cash inflows include cash sales, accounts receivable collections, loans and other investments. Equipment purchased, expenses paid, inventory and other payments are considered cash outflows.

    To calculate your ending cash balance, take the beginning cash balance, add cash inflows and then subtract cash outflows. (Beginning cash balance + cash inflows – cash outflows = ending cash balance.) Download SCORE’s cash flow statement template (.xls) to get started. Explore SCORE’s library of financial statement templates for more helpful documents.

Learn more about preparing financial statements for your small business and check out our free training course on accounting basics. You can find a SCORE chapter, Small Business Development Center SBA resource partner for additional resources, training and mentoring.

About the Author:

Paul Lester

Former Contributor

I am an author for the the Community, writing about topics that matter to you as a small business owner. Our ongoing goal is to improve this site to meet your needs, so we're happy to receive your feedback and participation. Thanks for joining our online Community here at!


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it is very important for small businesses to keep financial records on day to day will further help them to grow their business
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Agreed that lenders will want those three documents --- eventually. But in my experience as a lender, mentor and entrepreneur, here are the three “better” documents to present during your first meeting with the loan officer. 1. Sources and uses of funds to tell the lender how much money you want. 2. Your credit score --- it the quickest way to get the lender to read the rest of your proposal --- or say “no.” 3. Your current debt service coverage and also projected for 12 months hence to show that you can repay the loan. Jerry Chautin Former entrepreneur, commercial real estate and business lender Currently business columnist, financial content provider, blogger SCORE certified business mentor, coach, counselor SBA's all volunteer, non-profit resource partner SBA's 2006 National "Journalist of the Year"
Hey this very beneficial! I can’t thank you enough for sharing this post about the essential financial statements for your small business, now I have basic information about this area. Can’t wait to include these to my business list ASAP! More essential financial statements tips here:
Yes, I absolutely agree with you. These three things are very important for any Business and they are equivalent to each other. Thanks for Sharing this helpful information.
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