Understanding Financial Statements: A Guide for Non-Accountants
Financial statements can feel overwhelming, but once you know what to look for, they’re incredibly useful tools to understand how your business is really doing.
The Three Big Ones
- Profit and Loss Statement (P&L)
This report shows your income, expenses, and profit over a period of time. It tells you whether your business is making money, breaking even, or running at a loss. - Balance Sheet
This shows your business’s financial position at a specific point in time—what you own (assets), what you owe (liabilities), and what’s left over (equity). It’s great for understanding the overall health of your business. - Cash Flow Statement
This tracks how cash moves in and out of your business. It shows whether you have enough cash to cover day-to-day operations, which is crucial for short-term decision-making.
Why They Matter
These reports help you:
- Spot trends (e.g., rising costs or falling revenue)
- Make informed decisions (e.g., can I afford a new hire?)
- Prove financial stability to lenders or investors
Don’t Just File Them Away
Make reviewing your financial statements a regular habit. Even if you’re working with an accountant, it’s important to understand the basics so you can confidently steer your business.
Financial statements don’t have to be intimidating, they’re your business’s way of telling you what’s working and what’s not.
