Passionate business owners do a fantastic job at delivering their product or service to customers, but more often than not, don’t do such a good job of controlling the financial part of their business. Understanding your business figures is an essential skill for all small business owners. Being able to analyse your financial statements allows you to make informed decisions about the facts, not intuition.
So what are the key financial reports you need to understand?
1. The Profit and Loss reports the business income, expenses, and the profit over a specified period of time.
2. The Balance Sheet reports the assets, liabilities and net owners’ equity at a given point in time.
Once you are able to understand the information shown in these reports you are better equipped to analyse the figures to gain a better understanding of your business performance. Converting your financial data into ratios or percentages is a great starting point as it allows you to make comparisons across financial years or with other businesses in your industry.
Financial Statement analysis allows you to determine if you are correctly pricing your products (gross profit analysis), how much you need to sell before you start making a profit (a break even analysis), and if the business has the ability to meet short term financial commitments as they fall due (liquidity analysis).
Do you want to be financially in control of your business?
Do you want to understand what your accountant tells you?
Do you want to know how to find answers in your financial statements?
If so, please join with likeminded business owners in our group ‘Financial Management Toolbox’ program to find the answers to these questions and more. To start driving positive financial results in your business click here.