When you are ready to move your small business to the next level in Pima County, you will want three essential financial statements: a balance sheet, a profit and loss statement and a cash-flow analysis.
Why? They not only help you price right, identify margins and make it easier to file taxes, but they are essential when seeking funding from lenders or investors.
According to Small Business Administration contributing blogger Paul Lester, (tinyurl.com/nkqd2sq), here are the facts about these basic financial statements:
1. BALANCE SHEET
This statement provides an overall financial snapshot of your small business. As an equation, it looks like liabilities (what you owe) + owner’s equity (what you invested) = assets (what you own). There are two types of assets: Current assets include cash or other holdings that can quickly be converted to cash within a year (inventory, prepaid expenses and accounts receivable); Machinery, equipment, land, buildings, furniture, etc., are considered fixed assets.
Liabilities can be broken down into current or short-term liabilities (accounts payable and taxes) and long-term debt (bank loans or notes payable to stockholders). Owner’s equity includes any invested capital or retained earnings. If your accounting information is correct, both sides of the equation should be equal.
2. PROFIT AND LOSS STATEMENT
A profit and loss statement, sometimes called an income statement, helps you project sales and expenses over a specific time period. It also helps you determine your net profit.
3. CASH-FLOW STATEMENT
This statement highlights how much money is flowing into (cash sales, accounts receivable collections, loans and other investments) and out of (equipment purchased, expenses paid, inventory and other payments) your business.
SCORE offers a complete library of free financial statement templates and more at tinyurl.com/pqv8tps.