Many small business owners went into business to follow their interests and passions. Then, in the course of running their business, they find that the ‘Office and Operations’ side can take over. There are so many important things to pay careful attention to, which can draw the owner in various administrative directions. This can easily take them away from the interest and passion that was driving them in the first place.
There are some ‘hacks’ that Business Owners can utilize to minimize the time that gets sucked into the ‘Admin’ side of their day. One important tool is to have some basic knowledge of financials statements is You can outsource what it takes to stay on top of your finances, but the owner should always know how to quickly look at their own financial statements to see the health of the business and make decisions.
Here is a simple run-down of what financial statements can mean for you:
- What is a Balance Sheet?
- A balance sheet tells you the state of your business from the day it was born to the date you are looking at. Typically, the entire life of the company. A balance sheet shows your company assets, liabilities and equity balances at a specific moment in time. The balance sheet can show you if your company has a positive/negative net worth, enough cash to cover current expected expenses, and can be used with a Cash-Flow report to show whether you can cover future known expenses.
- What is a Profit & Loss?
- A profit and loss tells you how the company performed for one year. It resets at the end of twelve months and the bottom line (net profit or loss) then moves to the retained earnings on the balance sheet. These can also be run month-by-month or year-over-year to show/compare the net profit over time.
- What is a General Ledger?
- This is the chart (list) of accounts used to track your business monetary activity. They are;
- banking, assets, liabilities, equity including retained earnings, (these accounts listed are all part of the balance sheet)
- income, cost of goods, and expense accounts (these accounts listed are part of the profit and loss.)
- What is a Job Profitability?
- This is a report that shows your expenses vs. income for specific jobs. This allows you to keep an eye on which jobs are profitable compared to others.
- This is the chart (list) of accounts used to track your business monetary activity. They are;