If I were to ask you right now the exact financial position of your business would you be able to accurately tell me? Or would you answer in generalisations and sweeping statements?
Do you know the key to any prosperous business? It is having a firm understanding in the language of business (ie numbers), and knowing at any point in time, where the business is up to financially.
Ignorance is no excuse! To run a successful business you don’t have to be a qualified bookkeeper or accountant, but you do have to take responsibility for knowing your numbers. You can’t abdicate your responsibility to the qualified ‘numbers people’ in your team – whether they be internal staff or external consultants.
But fear not – understanding your business finances is as straightforward as ensuring you ask questions around the below three financial statements – as easy as 1,2,3!
1. Cash Flow Statement
The cash flow statement shows you the movements of cash in and out of your business – hopefully more in than out! This statement also gives you an insight into whether the business is self-generating. Ideally the cash generated from your core business activities should be sufficient to pay the bills.
2. Balance Sheet
The technical term for this is your Statement of Financial Position – which should give you some insight as to its purpose! Your balance sheet tells you the financial position of the organisation at a specific moment in time. It covers what you own (ie. assets), what you owe (liabilities) and what’s left (owners equity).
A little hint here…. If the figures in this particular report are not correct then it is highly likely that none of the others are accurate either so whilst it’s usually the least understood it’s possibly the most important for getting a truly clear picture of where a business is at.
3. Profit & Loss
The profit & loss (P&L) statement is often also referred to as the income statement and is normally accrual based. This means that income or expenditure is reported when the sale or purchase is invoiced not when it is paid.
This is why it’s important to not only look at your Profit & Loss but your cashflow statement as well as they are not the same thing.
For example, if you invoice a client in May, however the invoice is not paid until June the sale with be on your P&L in May but is not actually Cashflow until June.
The above financial statements are the gauges that should be – must be – understood in order to drive your business with confidence. Not only do Successful business owners surround themselves with a great team, but they don’t just place
blind trust in that team, they also take responsibility for understanding their numbers so they can see how the business is travelling and steer it accordingly.
Love Miss EBS
If you would like to get organised and on track with your 1,2,3’s the team at EBS are here to help… Contact us today on 1300 YESBOSS or email@example.com or visit our website on www.ebussolutions.com.au
- Posted by admin
- On March 30, 2016
- 0 Comments