As a small business, usually a start up business, it’s likely that you don’t currently have an accountant or accountancy service you use on a regular basis. The reason for this is because start-ups in particular often pile every bit of cash they have into getting the business off the ground and making it a success, until profits start to show.

Of course, this is totally understandable, but in that case it’s vital to understand a few financial documents, to ensure that you completely understand your current cash flow, and that real state of your business.

A financial statement is one of those documents, and this is basically a report on the success or otherwise of your business in that tax year. It’s almost like an annual report, and it gives you important information on what you have achieved in that year, and what sort of forecast you can expect for the coming year. 

Within the financial statement are a few other documents, such as a balance sheet, an income statement, and a cash flow statement. All of these documents give information on assets, liabilities, what they are worth in terms of net amounts, the amount of revenue your business made in that year, etc. All of this information gives you a clear and real idea of your business. The numbers do not lie. While it’s easy to assume you’re doing well, your financial statement will tell you either way.

Why is it Important to Fully Understand Your Financial Statement?

Without the expert knowledge of an accountant, a start up business could easily fall foul of many potential pitfalls. Understanding your financial statement will give you cold, hard facts. This enables you to know when you can grow a little more, it tells you when you need to possibly pull back a little, when you can attempt to attract new business and investments, and when you can launch new products and services.  

It’s easy to see why a start up business may want to avoid spending cash on an accountant or on a professional bookkeeper, but if the cash can be found, it isn’t something you will regret. A professional is able to help you grow much faster, and will help you avoid the pitfalls which could otherwise easily coming your way. If an accountant or bookkeeper is not something you can realistically afford at the start up stage, then it’s vital that you do your own research into understanding your financial statement, and knowing what those numbers really mean for your business.  

The ability to be able to assess performance and forecast potential gains and losses is a tool, which every business should utilize to its best potential. A start up business in particular should be looking towards their financial statement very carefully indeed. It’s easy to assume you’re doing well, but it’s only when you see that success in numbers on a serious piece of paper that you can really be proud and hopeful of you future business success.  

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- Written by: Jag Bath