Small Business Finance Statements

Financial statements provide information about the financial health of your company.  Business owners, investors, creditors, and the Internal Revenue Service use these statements. 

Income Statements

The Income Statement is a formal financial statement that summarizes a company's operations (revenues and expenses) for a specific period of time, usually a month or year.  A small business owner can use an income statement to:

• Identify the areas of their business that are over or under budget
• Pinpoint items causing an unexpected expense, such as phone, fax, mail, or supplies
•  Track dramatic increases in product returns or cost of goods sold as a percentage of sales
• Determine income tax liability

Balance Sheets

A balance sheet helps a small business owner quickly get a handle on the financial strength and capabilities of the business.  Is the business in a position to expand?  Can the business easily handle the normal financial ebbs and flows of revenues and expenses?  Or should the business take immediate steps to bolster cash reserves?

A balance sheet lists the following:

• Assets-Assets are anything of value. Some examples of business assets are cash, accounts receivable, notes receivable, inventory, land, and equipment.
• Liabilities-Liabilities are amounts the business owes to others. Usually one of a business's biggest liabilities is to suppliers, who charge businesses for goods and services. Liabilities are listed in the order of how soon they have to be paid.
• Owners' or stockholders' equity-Owner's Equity is what the business owes the owner, assuming all liabilities (amounts owed) have been paid.

Back: Small Business Fundamentals Homepage