Tracking your financial data is extremely important for all businesses. Not only will it tell you where the funds are going, but it is also an essential tool to use when seeking funding from lenders or investors. Plus keeping tabs will ensure your services and products are priced well, determine cash flow, identify margins, and make filing taxes easier. The following are three basic financial statements that are extremely critical to your small business.
Balance sheet. This is an overall financial snapshot of your small business. Managers can use the equation, liabilities + owner’s equity = assets. The equation is supposed to balance out.
There are current and fixed assets. Current assets can include money and other holdings like inventory, account receivable, and prepaid expenses. Machinery, furniture, equipment, land, and other essentials are fixed assets. Liabilities are either current or short-term like accounts payable and taxes, and long-term debt.
Cash flow statement. This statement shows how much money is coming in and out of the business. Cash includes loans, cash sales, accounts receivable collections, and other investments. Expense paid, inventory, and other payments are outflows.
Profit and Loss Statement (P&L). A profit and loss statement, or income statement allows you to project expenses and sales and can cover a period of a few months to a year.
Determining net profit is a critical function of the P&L. This is determined with this equation: Gross profit – total operating expenses = net profit. Be sure to include overhead costs like repairs, insurance, utilities, and legal fees into operating expenses. Monitoring your financial status at all times is very important. Use these three tools to ensure that your business stays healthy.
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