I've been getting asked a lot lately from small business owners about how to understand their financial statements so I thought I'd just give you three quick tips to help you get started on understanding these. The first one is you need to have a look at your profit loss statement. This is made up of the income that the businesses earn thus the expenses it's incurred. This gives you the net profit. We then can have a look in the tax return. You should be able to see that figure there but this is often adjusted for tax purposes because some of the expenses may be tax deductible and some may not. These adjustments are done to give you the net profit for tax.
The second tip is to have a look at your balance sheet. This shows you the net worth of the business. It's broken up into assets. These are things that you own e.g. the computer, furniture things like that. Liabilities are what you owe so this can be bank loans, credit cards or overdrafts. The difference between the assets and liabilities is the net worth of the business. The third tip is if you have a look on the financial statements and compare the two years, if the figures increase that means the net worth of your business has increased or if it's gone down your assets have an increased as much as your liabilities. I hope that's been a help. It's just a quick short version of some complicated things that happen with your financial statements. Owning a small business is an exciting challenge. However, it is easy to get sucked into living day to day and lose direction. By focusing on the 5 main areas of business growth you can grow a business that will allow you to live the life you want. So if you feel like your business is growing faster than you can keep up, email [email protected] to organise a free chat.
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AuthorLynne Spalding, founder of FCS, spent more than 20 years working in an Accounting practice before founding Financial Controlling Services in 2002. She brings more than 35 years of experience in accounting to each client. Categories |