It’s that time of year again when most of us are preoccupied getting the end of year financials in order. However, given all the effort that goes into preparing them, it’s amazing how many business owners fail to fully analyse what the numbers are saying. So, rather than just filing away your financial statements as another job done, make sure that this year you take the time to examine exactly what they are telling you about the health of your business. Here’s an overview of the various elements that go to make up your financial statements. And if you need help with understanding your financials, then get in touch with us here at Cleaver Partners for more help and support.

Profit And Loss Statement

Also sometimes known as the income statement, the profit and loss statement is a summary of the business’s revenue and expenses over the previous year. It tells you how much real profit you’re making or losing. A profit and loss statement can support the development of sales targets and it can also help to inform decisions around setting an appropriate sales price for goods or services.

Balance Sheet

This is a list of all the business’s assets, liabilities and owner’s equity as at the end of the year. Assets include cash, stock, equipment, money owed to business as well as goodwill. Liabilities include loans, credit card debts, tax liabilities and money owed to suppliers. And owner’s equity is the amount left after liabilities are deducted from assets. Assets and liabilities are divided into current (short-term ones) and non-current (long-term).

The balance sheet is an important indicator of the overall health of your business. It provides an overview of how much money a company has (its assets), how much it owes (its liabilities), and what is left when you net the two together (net worth or owner’s equity). Any potential investors in your business will be very interested in the balance sheet.

Statement Of Cash Flows

This provides a summary of all the cash receipts and cash payments for the year. Cash flow is the lifeblood of any business and the statement tells you what money is coming in and going out of your business and what money is available for you to spend. A healthy cash flow means that you have enough money to pay what you owe when it’s due.

Many a good business has faltered because of problems in managing cash flow so this statement is a fundamental measure of how sound your financial situation is.

Notes To The Financial Statements

As well as analysing the three main components of the end of year financials, it’s also important to pay attention to the accompanying notes. The notes provide additional information or clarify particular aspects of the financials. For example, the notes often tell you what accounting methodologies have been used to determine depreciation. Different methods can cause significant differences in the amount of assets shown on the balance sheet and the business’s net income.

Contact Cleaver Partners

Understanding financial statements is the key to unlocking your business’s success. If you would like help in analysing your financial statements, then get in touch with us here at Cleaver Partners. We can provide the guidance and support you need to determine the bottom line of your financials.