by Debi Enders
As a new and -- let’s hope -- better year begins, now is a good time to take the financial pulse of your business.
A simple financial assessment requires you to identify your assets and liabilities, understand your expenses, project your sales for the coming year, and calculate your projected profit. When you’re finished, you will better understand what you should be charging and whether you need to add or reduce inventory, roll out a new product – and more.
A financial professional can provide great help. Still, you can learn much from conducting a do-it-yourself assessment that looks at three important financial reports:
1. Your year-end balance sheet – A balance sheet provides a snapshot of your business’s net worth. It includes your assets (i.e., equipment, inventory, property, and cash) along with your liabilities, such as loans, credit card debt, and outstanding payments. Subtract your liabilities from your assets, and you’ll know how much equity you have in the business.
2. A cash flow statement – It’s very possible for your business to be profitable on paper, but cash poor as you invest in inventory or await customer payments or seasonable sales. A cash flow statement that summarizes all cash that enters and leaves your business can help you to evaluate whether you’ll have the cash on hand to pay expenses throughout the year. Such a statement can also be a helpful tool in planning purchases and assessing a long-term outlook.
3. An income statement – This financial report shows your business earnings minus your expenses over the previous month, quarter, or year. It provides a clear picture of your profitability over a given period of time. These figures can be helpful as you put together sales forecasts and expenses for the future.
The bottom line: Each of these three financial reports provide information that can help guide your strategy and decision-making, whether you are looking to grow your sales or build your nest egg. Taken together, they can help get your new year off on the right foot.
Debi Enders (firstname.lastname@example.org) is vice president, small business banking at Commerce Bank.