If you only study your profit and loss statement, you aren't getting
the full picture of your business finances.
the full picture of your business finances.
“My financial statements show I’m making money, but I don’t have any cash.” We hear this statement all the time from entrepreneurs like yourself. Most assume they should just drastically cut expenses and they’ll be OK. Here’s what you should do instead.
If all you are looking at is the income and expense portions of your financial statement, you are only seeing part of the picture. Your financial statement consists of two parts, the profit and loss and a balance sheet of assets, liabilities, and equity.
The profit and loss portion reports your income and expenses, which all flows into the balance sheet. The balance sheet tracks the changes in the assets, liabilities, and equity. These two separate documents arithmetically prove each other by being in balance. Each is useless without the other. To see the entire picture of your business, you must be able to read and understand both.
Now, where does the cash go? The answer is revealed by the balance sheet. Let’s say that last month you made a profit of $49,000 but your cash went down by $35,000 and you’re feeling broke. What happened?
If all you are looking at is the income and expense portions of your financial statement, you are only seeing part of the picture. Your financial statement consists of two parts, the profit and loss and a balance sheet of assets, liabilities, and equity.
The profit and loss portion reports your income and expenses, which all flows into the balance sheet. The balance sheet tracks the changes in the assets, liabilities, and equity. These two separate documents arithmetically prove each other by being in balance. Each is useless without the other. To see the entire picture of your business, you must be able to read and understand both.
Now, where does the cash go? The answer is revealed by the balance sheet. Let’s say that last month you made a profit of $49,000 but your cash went down by $35,000 and you’re feeling broke. What happened?
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We want you to understand
your company’s full financial picture.
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your company’s full financial picture.
Well, the inventory went up by $18,000, you bought a piece of equipment for $13,000 in cash, your receivables went up by $26,000, and your payables went down by $27,000. This is where the cash went. The activity is revealed to you in the balance sheet if you read it or hidden in there if you don’t. That’s where the cash goes to hide.
We aim to teach you how to read the complete financial report on your business. We can also help prepare a simple supplementary piece called “The source and use of cash statement,” which highlights the cash activity for you.
This is just one of the reasons why you need much more than just bookkeeping from an accountant to protect and maximize your business’s performance. You need a qualified, experienced accountant on your team. You worked too hard to not hire the best, you deserve it.
If you have any questions for us at all, don’t hesitate to give us a call or send us an email. We look forward to hearing from you.
We aim to teach you how to read the complete financial report on your business. We can also help prepare a simple supplementary piece called “The source and use of cash statement,” which highlights the cash activity for you.
This is just one of the reasons why you need much more than just bookkeeping from an accountant to protect and maximize your business’s performance. You need a qualified, experienced accountant on your team. You worked too hard to not hire the best, you deserve it.
If you have any questions for us at all, don’t hesitate to give us a call or send us an email. We look forward to hearing from you.
Your blog post giving good information for each article so keep sharing.
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