Intro to Business Financial Statements – Small Business Financial Management
In the upcoming sections, we’ll spend some time reviewing major aspects of the different business financial statements. Understanding how the income statement, balance sheet and cash flow statement work is useful for a small business owner (or stock market investor, banker, corporate employees, and many others) in a number of ways. While many entrepreneurs don’t start their business to try to optimize their small business finances, every company needs to make money so they can continue to pursue their passions. Even for non-profits, understanding these aspects of the business is important so they can most effectively use their money to fulfill their missions. Once we understand these statements, we can predict how much funding you’ll need in the future, the effects of increasing sales or decreasing the costs to make your product, how much your company is worth, and a number of other useful small business financial management concepts.
In this set of lessons, we’ll start to dig into the components that go into a company’s income statement, balance sheet and cash flow statement. This is not meant to be an accounting course on all the different rules on how you would categorize or treat each expense, asset or cash flow. We’re also not going to spend much time talking about taxes and how that affects different decisions. While accounting and taxes are important to your business, they’re best left up to a CPA which I am not.
The purpose of this section is to dig enough into the details so we can understand how money flows through a business. Understanding the high level terminology and the various impacts each decision can have to your business financial statements is important to understand how a certain decision can affect the company’s bottom line or free cash flow (we’ll go through terms just like this in the upcoming lessons). After we start with the income statement, we’ll cover the balance sheet and then go to the cash flow statement. In the final set of lessons, we’ll focus on how each of these sections tie together and how decisions we make in our business can affect each set of numbers.
So with that, let’s start to dive into the income statement!