I want to use this post as an entry point and starting point for what I see as important around the financial statements and how you can use them.

Some of it I will explain, and some of it you may just have to accept (or not) and we can elaborate with some specific posts going forward.

The financial statement tells the “story” of your company. They tell a seasoned investor or executive where you’ve been. They also set the baseline for where the business could go over the short and medium term. That alone makes them important and why you should get them right if you want to grow your business.

Any time you want to raise funds to further your business (debt or equity) you are going to have to provide this information and it will be used as a key reason why you do or do not get what you want.

There are three main elements in a full set of financial statements:

  1. Income Statement (or Profit & Loss Statement)
  2. Balance Sheet
  3. Cashflow Statement

Often when accountants prepare your financial statements they only prepare the first two and omit the Cashflow Statement. Go and check yours. If it is being omitted then get it changed as soon as possible!

I won’t cover it in this post but the Cashflow statement has key information that lets you stay on top of your company liquidity and solvency.

Most business owners focus on the Income Statement only. They get excited when they make a profit and think all is well with the world. That’s a mistake – its not that simple. It might be okay if you have a purely cash based business but as you spend time with me you will know that you need to ensure your business is accrual based if you want to really turn it in to something serious.

NOTE: Check whether your accountant is preparing your books on a cash basis or an accrual basis – if it’s based on cash change it to accruals now!

There is a saying that goes “Revenue is Vanity, Profit is Sanity, and Cash is Reality”. Most business owners focus on the first two. What I want to do with this website is get you to think a different way.

If you can learn how to use the Balance Sheet and the Cashflow Statement effectively you will end up with more cash in your pocket, a stronger balance sheet, and a more valuable business, without necessarily having to sell more.

In following posts I will work through each of the three items that make up the Financial Statement and walk you through where I see the real value is and some items you can focus on to maximise the performance of your business.