Small Business Financial Statements

Why do you need to know about small business financial statements?

When you are starting a small business, one of the things you will need to do is to familiarize yourself with small business financial statements, so that you are able to evaluate the financial health of your business. If you do not at least have a rudimentary understanding of what they mean, your accounting records will be meaningless to you and you risk making decisions about your business based on incomplete or faulty information.

The primary financial statements prepared to assist business organizations to evaluate and manage financial performance include an Income Statement, Balance Sheet, and Cash-Flow Statements.

An Aged Debtors Listing would also be prepared on a monthly basis in businesses that offer credit to their customer.

Income Statement

The income statement or profit and loss statement is a statement of the profit or loss over a specified period of time.

The basic layout of an income statement is (itemized) income less (itemized) non-capital expenditure.

The difference between income and expenditure is the profit or loss.

Balance Sheet

The balance sheet is a statement of the net worth of the business on a particular date, and generally follows the equation mentioned above or a variant of it (i.e., Assets - Liabilities = Owner's Equity).

Cash Flow Statement

The cash flow statement reflects the movement of cash in and out of the business.

Aged Debtors Report

An aged debtors listing is a report listing all of your credit customers and provides details of the age or length of time the debt has existed for each account. Classifications for grouping customers are generally current (less than 30 days), over 30 days, over 60 days, and over 90 days.

Analyzing Your Financial Statements

As a small business owner you are going to need to know about analyzing financial statements, or you will have no idea just how successful your business is!

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