There are four basic financial reports you should run and review monthly. These include your balance sheet, income statement, cash flow statement, and statement of owner’s equity. All four statements are incredible resources, and each summarizes and highlights a different financial aspect of your business.
This is a statement of your company’s current financial position, which provides a summary of your assets, liabilities, and equity. Balance sheets use the equation: Assets = Liabilities + Equity. Balance sheets summarize a specific date in time, not a range. Always be sure to reference the date at the top of the balance sheet to be aware of the timeline.
Income Statement, a.k.a. Profit and Loss Statement
An income statement is a snapshot of your company’s revenue and expenses during a set period of time. Different from a balance sheet, an income statement offers data from a range of time.
Your income statement is a great tool when determining which business activities are profitable versus which are draining money. In addition, you can compare your current income statement with past statements to review whether sales have increased or decreased over time and when.
Cash Flow Statement
A cash flow statement complements both the balance sheet and the income statement. Your cash flow statement will help determine if your business is managing and maintaining its cash flow. Are you making enough money to fulfill the company’s debt obligations and pay for day-to-day operating expenses?
This is a great tool for determining where your business is making money and where it’s spending money. A cash flow statement is split into three specific categories: operating activities, investing activities, and financing activities.
Statement of Owner’s Equity
This shows a company’s retained earnings (rather than the money given to owners or shareholders). This money is typically re-invested into the business or used to pay off debts. By analyzing the above three reports, you can then determine what is best to do with these retained earnings.