Preparation of Profit and Loss, Balance Sheet, and Cash Flow Statements is essential to small businesses in reviewing the results of operations, financial position and cash flow of the business.
Financial statements should be prepared on a monthly basis – so as to give the business owner a clear understanding of the financial implications when making strategic business decisions.
The Profit & Loss Statement measures the company’s performance over a period of time: a month, a quarter or a year. The Profit and Loss Statement provides information on the results of the operating activities of the company, it matches revenue with costs in order to measure profit.
The Balance Sheet Statement or Statement of Financial Position shows the business’s financial condition at a point in time. It allows the owner to see what it owns (assets) and what it owes (liabilities) and it helps predict future cash flows. This information assists the business owner in understanding significant changes and potential operating issues that might impact financial results.
The Cash Flow Statement provides information about your company’s money coming in and the money going out during an accounting period. It measures sources and uses of cash for growth as well as returns and helps your company understand its liquidity and financial flexibility.
- Is the business healthy?
- Is the business making or losing money?
- Is the business growing year-over-year or is it stagnating?
- What does the business own (what are its assets)?
- How much cash does the business have?
- What are the owners’ financial returns or losses from the business’ operations?
