Understanding Your Financials

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When growing a business, one of the most important things you can do is understand what your financial statements are telling you.

Understanding your financials will help you spot trends, make decisions, and be more profitable because you will be more proactive in making changes.

Here’s an overview of three of the most informational financial reports. We recommend viewing and analyzing these reports at least once a month, if not more often.

Balance Sheet

This is a snapshot of what your company owns and owes at a specific moment in time. Your balance sheet contains critical information about the financial health of your business.

What your balance sheet shows:

  • Assets. An asset is what you own

  • Liabilities. A liability is what you owe

  • Equity. This is what is left over and due to owners

Income Statement

This statement, also called a profit and loss statement, is an essential part of gauging the operating performance of your business. It is a detailed statement reporting the various expenses of running your business, showing the net profit you made over a specific time.

This statement can provide a lot of information to you such as gross profit, net profit, what you spend in certain categories, etc.

The most valuable information can come from trend analysis where you are analyzing changes over time. This can show when sales increase or decrease by month, or if net profit is trending up year after year., etc.

Seeing and reacting to trends can be profitable. This is why it is crucial to have accurate accounting records.

Once you have been in business for a few years you can use past records to create accurate projections of profits for growth for the future. These projections can serve as goals for your business and help you review your income trajectory throughout the year.

Accounts Receivable

The A/R Aging is a report that lists unpaid customer balances by date range. It is used as a tool to identify which payments are overdue and haven’t been collected.

Additionally, this report can help you identify bad debts (we hope you have none!). Always try to keep debts in the 0-30 day bracket because the chances of collecting this payment get lower as you move right through columns. Or, change up your accounting policies where client’s pay upfront. Then you’re never chasing money!

All of this may seem like a lot to take in. It’s okay for it to be daunting at first, however, with a little bit of time and help, it definitely gets easier. I recommend making it a priority to review your financials regularly, ask questions, and make sure you understand what story they tell.  

 

Aligned CPA helps service professionals run better businesses. We’d love a chance to talk and see if we would be a good fit for your firm.  Contact us for a consultation today.


 Joy Lizotte, CPA

Joy Lizotte, CPA

About Joy

I help service based businesses GROW by providing accounting and growth planning services that will take their business to the next level.

I promise you, working with a CPA can be much more exciting than crunching numbers and reviewing last year’s taxes. I look at the day-to-day of your business and help you find ways to perform better, grow bigger and generate revenue with greater ease.