04:33
Faizan
You don't have to be a CPA to understand which numbers are most critical to the health of your business. Having a strong relationship with your accountant is a must for any business owner - however, as a business owner the financial health of your business is ultimately your responsibility.
The most critical numbers of your business can be found on three very important documents a balance sheet, income statement and cash flow statement. Below is a quick review of these basic financial documents that track the flow of money within your company.
1. Balance Sheet: A statement of the assets, liabilities and capital of a business at a particular point in time. This is a cumulative document from the time you started your business, reviewing your balance sheet will give you a good perspective on the financial strength and capabilities of your business.
2. Income Statement: This document otherwise known as a profit and loss statement or P & L, lists your company's income minus your company's expenses during a specific period of time-usually a fiscal quarter or year. These records provide information that shows the ability of a company to generate profit by increasing revenue and reducing costs.
3. Cash Flow Statement: This document will help you understand why, even if your company appears to be turning a profit, you still don't have much money in the bank. A cash flow statement shows the amount of cash generated and used by a company in a given period. It is calculated by adding non-cash charges to net income after taxes. Cash flow can be attributed to a specific project, or to a business as a whole. A Cash flow statement can be used as an indication of a company's financial strength.
Now that we have a basic understanding of the three important financial documents and how they track the critical numbers for your business, let's move on to profits and understanding critical profit numbers. There are three important and basic terms that represent the profitability of your business, gross margin, net income, and EBITDA (earnings before interest, taxes, depreciation and amortization).
The most critical numbers of your business can be found on three very important documents a balance sheet, income statement and cash flow statement. Below is a quick review of these basic financial documents that track the flow of money within your company.
1. Balance Sheet: A statement of the assets, liabilities and capital of a business at a particular point in time. This is a cumulative document from the time you started your business, reviewing your balance sheet will give you a good perspective on the financial strength and capabilities of your business.
2. Income Statement: This document otherwise known as a profit and loss statement or P & L, lists your company's income minus your company's expenses during a specific period of time-usually a fiscal quarter or year. These records provide information that shows the ability of a company to generate profit by increasing revenue and reducing costs.
3. Cash Flow Statement: This document will help you understand why, even if your company appears to be turning a profit, you still don't have much money in the bank. A cash flow statement shows the amount of cash generated and used by a company in a given period. It is calculated by adding non-cash charges to net income after taxes. Cash flow can be attributed to a specific project, or to a business as a whole. A Cash flow statement can be used as an indication of a company's financial strength.
Now that we have a basic understanding of the three important financial documents and how they track the critical numbers for your business, let's move on to profits and understanding critical profit numbers. There are three important and basic terms that represent the profitability of your business, gross margin, net income, and EBITDA (earnings before interest, taxes, depreciation and amortization).
Posted in: business
