Why Review Financial Statements?

There are three primary financial reports that every business should be reviewing on a regular basis and we don’t mean annually, we mean MONTHLY!

Cash Flow Statement

Used often for analysis purposes, the cash flow statement shows how much money a company has at any given time and speaks to a business’ solvency or financial credibility. For example if a company’s revenues are dependent on sales made during the Holiday season, any creditor/investor will want to know if it can consistently pay its bills throughout the year even though it get’s most of its revenue cyclically. A cash flow statement shows how the cash moves in and out of a business.

Income Statement

Financial reports like the Income Statement or Profit and Loss as it’s often called, show revenue, sales and expenses at a given period of time. Analyzing this in conjunction with the cash flow statement and balance sheet can help determine if current income is on budget. If not making adjustments month to month is easier than ‘righting the ship’ at the end of the year.

Balance Sheet

Showing company assets, liabilities and shareholders’ equity, this is another key report used by owners, investors and creditors when analyzing a company’s financial wealth and health.  Essentially it’s a tool to determine how “a company’s management is putting its resources to work”

For example, inventory is considered an asset and reflected on the balance sheet. Too much inventory on hand poses a problem because it ‘ties up money’ or not enough can lead to loss of sales. Regular analysis allows business owners to be prepared and plan purchases accordingly.

Trends can also be identified and monitored when businesses consistently analyze their financials. Understanding the data inform strategic business planning decisions.

Finally, if a business is seeking business expansion and a loan from a bank or is trying to attract partners or investors, accurate financials are imperative. (source)

Need clarification? Confused or want Custom Reports? Please feel free to call our team of professionals at (360) 733-5530.

Bellingham’s Business Support Services Northwest, LLC has proudly provided Payroll and Accounting Services to small and midsize companies for over 25 years.

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