The cash flow statementįor small business owners, how you manage your cash is especially important because your startup capital may not be enough to run the day-to-day expenses of your business, and so you would need to forecast and plan for cash coming in and going out as accurately as possible.

For example, if Sally’s Necessities sold a tool that helps make furniture, this information would be placed in the non-operating items section. The non-operating items section discloses revenue and expense information about activities that are not tied directly to the company’s regular operations. In the case of Sally’s Necessities, the business creates, imports and sells furniture and household items, and so the operating items section would talk to the revenues and expenses involved with the production, importing and selling of these goods. This statement is generally divided into two parts: the operating and non-operating sections. When Sally needs to know if her business made a profit or a loss over a certain period, this is the report she looks at. Income statementĪ business’s performance is reflected in the income statement. This helps her get a snapshot of her company’s health by indicating how much her company owns (its assets), and how much it owes (its liabilities). With this statement, Sally can identify whether the assets of the business exceeded its liabilities. The balance sheet of a business essentially identifies its net worth. We’ll use Sally’s Necessities as an example to explore what Sally learned: The balance sheet Not sure what each statement means or why it’s important to understand them? Neither did Sally, owner of furniture and household boutique Sally’s Necessities, before she started growing her business into the successful operation it is today. The three most important financial statements are the balance sheet, income statement and cash flow statement. Take a test drive today! A regular financial health check It’s important to know what these are and where they come from so that you’re aware of how your business is doing at any given time.Įnjoy less admin, more automation, simplified payroll, and get paid faster with Sage 50cloud. At a high level, your financials refer to important reports or statements that offer you great insights into the financial health of your business. However, your financials mean much more than this. Most small business owners associate their business’s financials with something that banks require you to grant credit or to open an account. Too many business owners don’t understand their own finances, and have no idea what products or services make the most profit.” Why should I understand my small business finances?Īre your financials simply the monetary value of your income and expenses, and your profits and losses? Or do they mean more than that-is it also how you earn and spend your money, where and when you make or spend this money? Here we’ll look at why it’s important to know your financials as a small business owner. Author Richard Weinberger says, “A lack of knowledge of basic finance is a common-and dangerous-mistake. But they do need to get a handle on their small business finances. Small business owners are often not accountants-and they don’t need to be. Virgin founder Sir Richard Branson goes so far as to say, “It’s an endurance race that only a few survive.” He also lists three ways to stay in business longer:Īnd at Sage, we believe there’s another way: Yet, according to Bloomberg, eight out of 10 companies fail within 18 months of opening for business. In the US, small firms employ about half of all private sector employees. We all know the importance of small businesses to economies around the world.

Business finances