Do you struggle to understand financial statements because they are written in a secret language that only accountants speak? You’re not wrong! Do not worry, because we are going to translate this weird realm of numbers into actual understandable information.
So What Are Financial Statements?
A business’s financial statements are like a report card, physical and mental check up, as well as your crystal ball all in one. They’re basically official documents that detail your company’s financial results, an uber-organised journal that’s only topic is money.
Balance Sheet—How Broke Are You?
Like a snapshot of your business’s financial standing at the time. The balance sheet displays your assets, liabilities and equity. Consider it as the equivalent of a total available for your business. For advice from Accountants Bristol, visit a site like www.chippendaleandclark.com/accountants-near-me/bristol
The P & L: The Truth about Your Profit and Loss
This is something similar to a business’s autobiography for a specific time, Also known as Profit and Loss. It tells you how much money that was brought in (revenue), the outflow of your expenses and whether or not a net positive amount leading to profits remained. It would be the ultimate “Did we get it right?” measurement.
Your Money Churn Visualised — The Cash Flow Statement
What cash moved through your business – kind of like a bank statement on steroids. If on paper you are in the money, this is one of the reasons why.
Why Should You Care?
Financial statements are not just ways to impress your accountant or keep the filing secret from competitors. They are powerful mechanisms for improving the quality of decisions you make. Wondering whether that new machinery is even worth the investment? Check your cash flow. Can you justify your marketing spend? The answer – Your financial statement.
Reading Between the Lines
Where the real magic lies, however, is in comparing statements across time. Are sales growing? Are expenses under control? Is cash flow improving? Which, as you know… could prevent (or support) the fate of your business decisions.
The Bottom Line
While it might seem like financial statements are one large scary mess, they’re really your business BFFs. They show you where you have been, what place are in now and guide through your next steps. You can consider them to be your financial GPS — the essential tool for establishing a sense of direction while traversing through a turbulent business world.
