Henry Lopez shares his insights and actionable tips for conducting a Financial Review of your small business. Henry explains the importance of knowing the financial metrics of your small business, and how to review your Profit & Loss Statement for potential issues and trends.
Many small business owner neglect their financial statements, perhaps with the excuse that they are not good with numbers. While you certainly don’t have to become an accountant, that’s why you hire a competent small business CPA, it’s critical that you learn how to read and interpret your key financial report.
These certainly include your Profit & Loss Statement – sometimes also referred to as the P&L or Income Statement. You P&L shows how your small business performed over a previous period of time, over the past month, quarter or year as an example. This report details all of your revenues or sales, minus all of your expenses, to arrive at your profit or loss for that period of time. Things to look for on your P&L include any expenses that seem out of the ordinary, and how the same period of time compares to the same period the previous year.
Your Cash Flow Statement is another critical report you must understand and use if you have any kind of receivable revenues (you deliver a service or product, but don’t get paid until some time afterwards). It’s also important if you have to spend money on raw materials or inventory, which you will not sell until later. Mismanaging your Cash Flow can lead to the financial ruin of your small business!
If you have receivable, then your Aging Report is one you must be familiar with and review weekly if not daily. This is related to Cash Management, and it’s critical that you collect from your clients on a timely basis so that you don’t run our of cash.
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