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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 SBA.gov 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 SBA.gov!


Indeed a very good information shared. These points can really be helpful for all kinds of business.And these tips can be a useful guide especially for start ups.
It is essential to keep the financial records when it comes to small business. It helps to understand the revenue of the business and take further steps for the well of the business.
The points that have been made are good to remember for a business plan of all sorts. Not only for a start up business plan but also a plan to reposition your business. This information outline and gives a good framework to those in need of help.
We are trying to implement better control over our cashflow right now. This article as well as some of the linked posts are timely for us. Thank you!
The link provided for SCORE's profit & loss statement template actually opens the 12 month cash flow template
Income and expenditure is also very important.
As a guy who is planning to setup a startup company this is excellent guide for me ..thanks
Great information. Thank-you. Now, would you recommend that we do our own accounting in-house via a bookkeeper using QuickBooks or is it preferred that the financials be done with an accountant using their own online program. I know there is a cost vs convenience for this decision.
Monetary statement are necessary correct from organization. it is a great notion to provide a personal balance sheet and pro forma earnings & expense along with an executive summary for your organization when you submit a Letter of Intent to the landlord.
Financial statement are essential right from business formation to check where the business stands after certain period of time. As these kind statement genuinely helps in knowing the business standing at any point of time.


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