Ask SCORE: Must have Financial Documents for your business

07/27/2023

QUESTION: As a small business owner I need to have a better understanding of my financial statements, especially my cash position at any given time. What do you consider the most important documents?

ANSWER: With all the responsibilities of ownership, running a small business can consume an inordinate amount of time. Making time to manage your financials can be hard, but there are three documents you cannot afford to ignore.

  • Balance Sheet– This document is a snapshot of your financial position and shows you if you are in the red or black. It lists your business assets, liabilities, and equity. Together they represent the net worth of your business.
  • Profit and Loss Statement – Your P & L is your income statement. It summarizes your business revenues and expenses during a given period of time and enables you to understand how your revenues and costs impact your profitability.
  • Cash Flow Statement – Of the three documents the Cash Flow Statement is the most useful. You have payroll and other expenses that are due each month. Adequate monthly cash flow is critical if bills are to be paid in a timely manner. Developing a monthly cash flow budget will enable you to determine when these expenses come due.

 

In summary, your balance sheet and cash flow statement will tell you how much cash you have on hand, how much you owe, and the equity you have in the business. Your annual profit and loss statement will indicate if you made a profit or not.

Without the information provided by these three documents you have no idea where you stand financially and have no basis to work from in making strategic decisions for the growth of your business.

When you put in the time to assemble and analyze these documents, you are giving yourself the tools to keep your small business on track. Set aside some time each month to review each. This will enable you to create financial goals for the coming months and years.

SCORE provides free templates for these three documents as well as a business plan for both start ups and ongoing businesses. They can be accessed at https://tinyurl.com/2b38dum6

Setting up and maintaining your balance sheet P&L, and cash flow statement is easier with the help of someone who understands the process. Score will offer a workshop July 15 titled “Taking the mystery out of financial statements”. To sign up log on to https://tinyurl.com/49ehjkvz

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Gray Poehler is a volunteer with SCORE Naples. Business counseling on this and other business matters is available, without charge, from the Naples Chapter of SCORE. Call (239) 430-0081 or visit https://naples.score.org/mentors . To access information for local SCORE workshops go to https://www.score.org/naples/local-workshops