9/3/2004
Secrets Revealed: What Your Financial Statements Can Tell You
by Phil Harris, Business Consultant, UALR ASBDC
The best cure for potential financial problems is fast action. Financial statements often tell a story that will enable you to act in time, if you periodically review your financial statements and if you understand what the numbers are telling you.
Financial statements are very important because they measure the financial health of your business and give you a picture of the assets and liabilities of your business. You should see an income statement and a balance sheet each and every month. While it may not be 100% accurate, because of depreciation and other items, a monthly income statement is a must. Not only should you see how you have done for the month, but you should also see on the income statement how you are doing cumulatively. For example, when February closes, you ought to see February's income statement plus the total income statement for February and January, which is just the simple sum of the two months' financial statements. Comparative statements from the prior year, if available, are also a valuable tool for analysis.
In order to really know how your business is doing, you must do some ongoing financial planning and analysis. By themselves, numbers usually don't mean much. But when you compare them to certain other numbers, you can learn a lot about how your business is doing. For example, you can compare the planned expenses depicted on your budget to your actual expenses in order to see if your spending is on track.
One way to learn to understand financial statements is to have your accountant review them with you and show you what each and every account means. We promise you that the more you understand these statements, the better able you will be to make critical financial decisions that will greatly improve your profits. Now go out and make the effort to really understand your financial statements!
You can learn more about financial analysis by attending an ASBDC seminar on financial statements or cash flow. View the upcoming statewide training schedule at: http://asbdc.ualr.edu/training or check out the free documents at http://asbdc.ualr.edu/bizfacts.
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