Whether you’re applying for funding, preparing your taxes, or simply making better business decisions, understanding your financial statements is essential. At BBRC, we often meet small business owners who are passionate about their products and services but less confident when it comes to their finances. If that sounds like you, don’t worry — you’re not alone. Here’s a quick overview of the three key financial statements every business owner should know:
-
Income Statement (Profit & Loss Statement)
What it shows:
Your income statement tells the story of your business’s profitability over a specific period of time — usually monthly, quarterly, or annually.
Key components include:
- Revenue (Sales) – The total income generated from business operations.
- Cost of Goods Sold (COGS) – The direct costs of producing goods or services.
- Operating Expenses – Costs like rent, salaries, marketing, etc.
- Net Profit (or Loss) – What remains after all expenses are deducted from revenue.
Why it matters:
The income statement shows whether your business is making money. It’s often the first thing lenders, investors, or partners ask to see.
-
Balance Sheet
What it shows:
The balance sheet provides a snapshot of your business’s financial health at a single point in time. It details what your business owns and owes.
Key components include:
- Assets – What the business owns (cash, inventory, equipment, etc.).
- Liabilities – What the business owes (loans, accounts payable, etc.).
- Equity – The value of the business after liabilities are subtracted from assets (Assets – Liabilities = Equity).
Why it matters:
The balance sheet helps you understand your business’s net worth and ability to meet short- and long-term obligations.
-
Cash Flow Statement
What it shows:
This statement tracks the actual movement of cash in and out of your business.
Key components include:
- Operating Activities – Cash generated from day-to-day operations.
- Investing Activities – Cash used for purchasing or selling long-term assets.
- Financing Activities – Cash from loans, owner contributions, or dividend payments.
Why it matters:
Even profitable businesses can run into trouble if they don’t manage cash flow well. The cash flow statement reveals whether your business has enough liquidity to keep operating.
Final Thoughts:
Together, these three financial statements offer a complete picture of your business’s financial performance and position. Reviewing them regularly can help you:
- Make better strategic decisions
- Secure financing
- Catch problems early
- Grow your business sustainably
At BBRC, we’re here to help you not only understand your numbers but use them to succeed. If you need guidance or support, reach out to one of our business advisors today.
