There is an untapped gold mine out there to your financial success. My experience with my clients has shown me they are not preparing and reviewing four critical financial statements monthly, quarterly or yearly. Each of these financial statement provides different information regarding the health of your business. These statements may also be requested from investors or others looking to assess the financial health of your business. They are:
Balance Sheet
A balance sheet is a summary of your company’s financial position at a given point in time. It lists your company’s assets, liabilities and owner’s equity. A balance sheet is prepared as often as needed or desired. If you are new in business you may want to have one prepared monthly or quarterly for your review.
Cash Flow Budget
A cash flow budget is a forecast of the amount and timing of future cash inflows and outflows over some period of time. It deals with actual inflows and outlays of cash. You should look at this information at least monthly or quarterly as it will show you when cash will be available to make payments for expenses and liabilities.
Operating budget
The operating budget is a written plan detailing how you will use your business’ resources, what amount of sales and expenses are expected during future periods. Unlike the cash flow budget, the operating budget includes depreciation, credit sales, and non-cash expenses and revenues. This is future projects not based on actual information.
Income (Profit and Loss) statement
An income statement is a summary of the revenues and expenses of your business over a given period of time. If your revenue exceeds your expenses you have a profit. If your expenses are greater than the revenue you have a loss. It clearly shows revenue and expenses for the accounting period, something the balance sheet does not do. It is suggested you prepare and review the income statement at least monthly as it will show periods of high, low or negative profits (losses). This information assists in your future planning and budgeting.
Now that you are familiar with the essential financial statements to manage your business take a few minutes to set up a system. If you are looking for a free online accounting software check out WAVE. It is easy to set up and use and you will be able to produce these reports with the click of a button.
