Most lenders require updated business financials when an application is submitted, but your income statement, balance sheet, and cash flow statement offer an insight into your business performance that may allow you to more quickly adapt to potential challenges and leverage new opportunities.
In Caron Beesley’s How to Make Sense of Your Small Business Financial Statements, she provides a simple, easy-to-understand overview of these three important business documents. Here are some critical questions you can answer with these documents:
How can my business become more profitable?
Take a look at your income statement. In which products or services has your business had the most success? Where are your biggest expenses? By preparing and reviewing your income statement monthly or quarterly, you can evaluate what new products or services may be offering you the most opportunities for growth. Click here for a step-by-step guide to develop your income statement.
What is my business worth?
Take a look at your balance sheet. If you decide you may want to sell your business, your balance sheet can tell you more about your debt, your ability to turn your business assets into cash, and the overall value of your business. Click here for a step-by-step guide to develop your balance sheet.
Does my business have enough cash to stay open?
Take a look at your cash flow statement. Cash flow is one of the biggest barriers to business survivability. By tracking not just your bank balance, but your cash balance, you will have a better sense of what you need to stay open, stay current on all payments, and pay yourself and your employees on-time. Click here for a step-by-step guide to develop your cash flow statement.
The bottom line is that managing your business’ financial performance is critical to survivability. If you work with an accountant, consider asking her/him to review your documents with you, in addition to producing them. By taking a deeper dive into what these tools tell you, your business is more adaptable and has the potential to perform even better.
Need help producing financial documents for your business? Existing OBDC clients can meet with our Vice President – Business Advising Paula Groves. Your local Small Business Development Center (SBDC), also has resources to support you.