Mark HalsteadPoring over financial statements is not many people’s idea of a great way to spend time. Even if you’re a passionate and committed business boss, the prospect of delving into details of your company’s financial performance might well be distinctly unappealing.
However, while you might think you already know what your financial statements are telling you, closer inspection can be well worth every effort and really can help you make better business decisions. Here’s how:
Profits and losses
The balance between profits and losses might seem like the most fundamental and straightforward of financial equations and in a sense that is certainly true. However, there is often a lot that can be learned from looking more closely at the details.
Figures that illustrate profits and losses can be used not just to show how much money your business has made but also to provide guidance on where its strengths and weaknesses currently lie.
From a strategic standpoint, you can use the details of profit and loss figures to focus on doing more of what works for your company and less of whatever is hindering its performance or eating into your bottom line.
Balance sheets
Profits and losses tend to be the headline figures that investors or creditors look at to gain a broad sense of a small business’ performance. These numbers though are put together periodically for specific purposes, whether it’s monthly, quarter or annually. This provides a potentially useful snapshot of how a particular enterprise is functioning but balance sheets can be much more illustrative of day-to-day realities.
Balance sheets show debts and liabilities, as well as assets and available equity. As such, they can be interpreted as health checks for businesses that reflect the stability or the vulnerability of a particular operation. By interpreting financial figures in this way, business bosses can themselves start to focus more clearly on creating a more comfortable and sustainable balance between assets and liabilities.
Cash flows
For small businesses, it would be tough to overstate the importance of maintaining cash flows and access to finance. Cash flow figures should be familiar to business leaders at all times because nasty surprises can quickly become major headaches and potentially fatal problems for enterprises that are unprepared.
Having happy customers and robust operational efficiency is all very positive but without steady and predicable cash flows, even the most otherwise viable of small businesses can find itself struggling for survival. Indeed, in many small business scenarios, a focus on cash flow numbers is not just prudent but essential to staying afloat.
Being prepared
Whether positive progress for your business means taking advantage of fresh opportunities or fending off creditors long enough to survive, a robust familiarity with your financial statements will always stand you in good stead. Ultimately, it’s about preparedness and about being ready to make proactive business decisions on the basis of what really matters most in your specific situation.
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