The 3 Financial Statements Every Business Needs
Keeping a business profitable and running smoothly requires a clear and accurate understanding of not only a company’s bottom line but also how well it’s performing, where it’s headed, and how well it can be expected to handle any challenges or opportunities that may occur. There are many different ways to accomplish this, and a variety of financial and accounting data can help stakeholders determine and verify the information they need for decision-making, future planning, and strategic thinking. Here’s a look at the three financial statements every business needs, what they include, and why they’re important.
The Income Statement
For a detailed, line-by-line breakdown of a company’s revenue, expenses, and resulting profits (or losses), decision-makers will want a recent and accurate income statement. It’s critical for evaluating how well a business is performing. The income statement clearly illustrates where the money a company makes goes, how it’s used, and how much of it is transformed into net profit.
The income statement will detail key factors like the cost of goods sold, gross profit earned, and how much it costs the company to operate. Knowing where improvements and strategic decisions can be made can help a company become more productive and, therefore, more profitable. Learn more about how to prepare an income statement for your business.
The Balance Sheet
While the income statement can provide a look at a company’s performance over time, the balance sheet is an up-to-the-minute snapshot of a company’s financial position. It will detail a business’s assets and liabilities, providing a clear picture of what the company owns — and what it owes.
Though it’s a “moment in time” look at a company’s financials, a balance sheet is indispensable when it comes to understanding the bigger picture and can inform discussions and decisions about long-term viability. If a company intends to seek outside funding from either investors or lenders, it’ll need to present an authoritative and comprehensive balance sheet to illustrate its creditworthiness.
The Cash Flow Statement
If an income statement is a look at where a company is headed and a balance sheet is a look at where a company is at the present moment, the cash flow statement is a look at how the company arrived at where they are. Cash flow statements, as the name suggests, track how funds move into and out of a company.
While income statements and balance sheets can detail non-cash assets or liabilities, the cash flow statement is about one thing only: actual transactions. Typically organized into three main sections, the cash flow statement will list operating expenses and activities, investments, and financing. Though a cash flow statement is always useful, it’s especially important during times of expansion or when outside funding is being considered. Check out our guide on improving cash flow for small businesses.
How CFO Hub Can Help
Knowing how to create and leverage these three critical financial statements can be a challenge for growing companies that may lack the necessary in-house expertise. For companies interested in taking greater control over their financial data, a strategic partnership with CFO Hub can make all the difference.
Our team of seasoned financial professionals can help enterprises at every level gain better financial clarity and the confidence they need to make accurate, timely decisions crucial to profitability. Learn more about outsourced CFO services and how they can support your business. Contact CFO Hub today to learn more about how we can help you meet your financial goals.