The easiest way to figure out the health of your company is by ... your ... reports. Don't start pulling your hair out yet. There are a few key reports you should, at the bare minimum, be
The easiest way to figure out the health of your company is by reviewing your financial reports. Don't start pulling your hair out yet. There are a few key reports you should, at the bare minimum, be reviewing regularly on a monthly basis. Those reports are your income statement (A.K.A. P&L or profit and loss statement), your balance sheet and your cash flow statement. "Easier said than done, you say"? Well it is not so hard if you have a little useful information under your belt.
The income statement shows the activities of the business during the period covered. It shows the income and expenses of the business during that period and the profit or loss that result. To put it simply the name is just as it implies. It is a snapshot of whether or not you made a profit. Keep in mind you must look at all your financial reports and not just one report, to get a true gauge of your company's well being.
You must ask yourself the following questions when reviewing you income statement:
1. How much profit did you expect to have? 2. If you are at a loss, what caused it? 3. Are your expenditures too high? 4. Is your pricing too low?
Once you have been reviewing your reports regularly, it will be easy to pick out any inconsistencies. Hopefully, with any luck, the results from your income statement won't be a surprise and you will have a net profit. If you are at a loss, now is the time to take a closer look and come up with viable solutions to turn things around quickly, the faster the better. If you can not come up with useful answers to the above questions, you should definitely consult with your financial professional.
The balance sheet is another report that should be monitored on a regular and consistent basis. The balance sheet shows your assets, liabilities and capital at a specific point. It should be generated monthly, quarterly or annually when the books are closed. The balance sheet is a snapshot of the worth of your company. Assets-Liabilities =Net Worth
Assets-An asset is anything you own or value.
Liabilities-Liabilities are the debts your business owes.
Balance sheets are fairly easy to read. They show the company's condition on any given date. A good way to gauge how the company is doing is by comparing balance sheets for the company at different periods. This will give you a good idea of the market trends your company goes through over a span of time. Be consistent, know your company and read between the lines.
What can be more important than cash? There is no getting around the fact that it is VERY important to track cash flow. This is the one area that can make or break your business.
What is a cash flow statement, you ask? The cash flow statement explains how a company obtained and used cash during the accounting period. There are inflows and outflows. Cash flows include any cash in or out generated from operating, investing and financing activities. The bottom line will tell you if you have an increase in cash or a decrease in cash. If you have a decrease, you have a problem. Using the cash flow statement, you will be able to quickly analyze what needs to be done to make swift corrections.
Your financial professional can assist you with your financial reporting. Make sure you get a thorough explanation from them as too what needs to be done. You hire them to advise you and not just hand you meaningless reports. After all, if you don't know what you are reading, they may as well be meaningless. You need to know exactly what the big picture means and what the bottom line is costing you.
In any case, you should be reviewing all your financial statements often in order to make quick adjustments. This will allow you to ultimately be more profitable and productive, after all isn't that what you are in business to do, make money, not loss it.
Where can you get these statements? From your accountant or reports can be generated from your accounting software. Remember no one report can give you everything you need. It is important to look at your income statement, balance sheet and cash flow statement on a regular basis. Always use your best judgment when making decisions based on the financial reports.
Elizabeth Hall, owner of Smart Office Help, Inc., offers ways for your business to save valuable time and money, by providing administrative and bookkeeping services to busy business owners. Contact Elizabeth Hall at 407-884-7755 for your personalized consultation. Sign up for your FRE*E Business Success Newsletter on our website http://www.SmartofficeHelp.com .