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Three Essential Financial Statements for Your Business

Three Essential Financial Statements for Your Business

By bridgetwpollack, Guest Blogger
Published: November 5, 2015 Updated: November 5, 2015

Starting a new small business? You’re probably fueled by passion, excitement, and commitment to your dream. Entrepreneurs possess amazing abilities to turn their ideas and expertise into a winning business idea.

But what about the money? Just because a small business owner has a great idea or years of experience in their field doesn’t guarantee financial savvy. Determining the necessary finances to start and operate a successful business for years to come is one of the most challenging parts of getting started. Lack of financial know-how has derailed more businesses than anyone would like to admit.

But while small business finances are challenging, they’re not impossible to overcome. Small business books, courses, mentors, and other training opportunities are available so readily because financial literacy for entrepreneurs is so important for long-term business success.

So before you dive headfirst into your business dream, review these three key financial documents you’ll need to know well in order to run your business. Even if you’ve been operating your small business for years, take a few moments to review these essential financial statements.

Balance Sheet

Your balance sheet tells you where your business stands at this very moment. This sheet adds up your assets (things you could sell, like equipment or vehicles) and subtracts your liabilities (money you owe, such as lease payments) to display your net worth.

Think of a business balance sheet like a checkup with your doctor. By looking at your status on a particular date, you can determine what actions to take to positively impact your business future. You can then create a projected balance sheet to set and work toward your financial goals.

For a walkthrough, take SCORE’s free Preparing a Balance Sheet online workshop.

Cash Flow

A cash flow statement tracks the cash coming in and out of your business. Like a balance sheet, it looks at a specific date or time period rather than projecting the future. Since cash is essential for keeping your business afloat -- and predicting the timing incoming funds can be difficult -- any shortage of cash means your business could quickly fall on hard times. A cash flow report helps you keep watch for any alarmingly low balances at the end of a month or other accounting period.

To learn more about managing your cash flow, take our free Managing Your Cash Flow workshop. Then, you can forecast your revenue and costs to predict your cash flow with the 13-week cash flow statement.

Profit and Loss

Your profit and loss statement helps you see revenue, costs, and your bottom line for a certain period of time -- which helps you estimate your gains in the future.

By examining your profit and loss statement, you’ll be able to determine options for increasing your profit, perhaps by raising prices, reducing costs, or taking other measures to ensure the financial health of your business.

A one-year profit-and-loss worksheet can help you plan realistically for short-term success. If your business needs outside financing, you may need to prepare a profit and loss projection for up to three years to prove you have a growth plan in mind. Remember that the longer projection you create, the more likely your results will vary.

For help creating a profit and loss statement, take SCORE’s free online workshop.

Financial statements can be confusing and frustrating, but with a little time and practice, they can help guide your business through startup and many phases of growth. Contact a SCORE mentor if you’d like to receive personalized help setting up your financial statements.

About the Author:

Bridget Weston Pollack

Guest Blogger

Bridget Weston Pollack is the Vice President of Marketing and Communications at the SCORE Association. She is responsible for all branding, marketing, PR, and communication efforts. She focuses on implementing marketing plans and strategies to facilitate the growth of SCORE’s mentoring and trainings services. She collaborates with SCORE volunteers and develops SCORE’s online marketing strategy.