Launching and running a small business is a challenging task, and it gets even more complex if you need to handle your financial statements single-handedly. One study suggests that almost 30% of small businesses fail because they run out of cash, which clearly show how important it is to keep an eye on your money and to plan expenditures properly.
If you are not really sure how to handle it, keep reading our post to learn eight ways to make sense of your small business financial statements. Let’s take a look!
Take Care of the Income Statement
We open the list with the financial basics. The income statement is one of the most important elements of your financial report, so you have to treat it with due diligence. This statement shows the ratio between the profit gained and the costs incurred in a given period.
Jake Gardner, a finance expert at Ninja Essays, says the purpose of the income statement is to evaluate the profitability of your small business: “In case you handle it precisely, the document will also give you inputs on how to improve and grow revenue.”
The Balance Sheet
The balance sheet is often considered to be an even more important financial indicator because investors use it to assess the fiscal stamina of a small business. While income statements analyze specific periods of time, balance sheets provide owners and their clients with the most recent financial data. The document covers some of the key business elements, including a company’s net value, liabilities, assets, and equity.
Mind the Cash Flow
We already mentioned that cash flow is the number one reason why new companies fail. Therefore, creating the cash flow statement becomes another major component of the company’s financial construct. What does it tell you?
On one side, this report shows you how quickly the money flows into your company. On the other side, it also shows how quickly you run out of cash. If you have any issues with missing payments, the cash flow statement will warn you about it.
The first three segments of financial reporting describe the current situation in your company, but this one is doing the opposite. Namely, a revenue forecast is a data-driven estimation of the profit/loss in the following year. As such, it helps you to make a realistic plan of investments, salaries, and other expenditures. Without this type of forecast, your business can hardly remain solvent in the long run as you won’t kno whether to initiate new projects, grow your team, take a new loan, etc.
Invest In Growth
This advice goes hand in hand with the previous one. If you want to keep your financial records in good shape, you need to think and behave proactively. In other words, you need to invest in growth to ensure the sustainability of your small business.
Product developers at Best Essays and Rush Essay say they always search for growth opportunities and try to save as much money as possible for future projects: “Investments have an amplifying effect because our customers notice that we keep improving your products and services.”
Return on investments (ROI) is yet another fundament of financial reporting because it helps business owners to figure out the results of their activities. For instance, you can learn whether your marketing campaigns deliver the planned results or not. The same goes for all other components of your business – customer service teams, new products, sales agents, and so on. But if you fail to measure ROI, you can hardly ever justify your investments.
Check the Books Regularly
Although financial reporting is periodical, you should not neglect it and wait for the whole year to be over before you engage. On the contrary, you should embrace a precious habit and check financial statements frequently.
You can do it once a month as it won’t take you too much time. It is only a matter of practice – experienced business owners don’t need more than an hour to examine the books and make sure that everything goes as planned.
Use Accounting Tools
Who says you must do everything manually? The year is 2019 and there are dozens of accounting tools that you can use to handle financial reporting. Finance professionals at XpertWriters tested most of the platforms and recommended a couple of options:
- Fresh Books: This is one of the simplest accounting tools that cover all of the major financial operations. It is highly convenient for beginner level users.
- Tipalti: If you are worried about scaling your business properly, use Tipalti to simplify the process. The platform will help you with everything from invoice processing and tax compliance to global payments and scaling.
Running a small business and handling all of its finances is certainly a complicated job, but it becomes much easier when you learn the basics of financial management. We showed you eight ways to make sense of your small business financial statements, so make sure to use them and keep your company stable long-run.
This post was written by Becky Holton is a journalist and a blogger at My Assignment.Help, Essayshark. She is interested in education technologies, write my essay, best dissertation help and is always ready to support informative speaking at dissertation writing service, college essay writing service. Follow her on Twitter.