Freelancers and small business owners often fail to develop a true strategy to keep their activities going for a long time. They often oversee the importance of having accurate financial information and end up doing it themselves or not doing it at all. This is one of the main reasons so many small companies failing after just a few months. I believe that this is mostly because they don’t really know that this information may be the difference between a healthy and thriving business and bankruptcy. The information presented in this document seeks to awaken your curiosity and learn more about the three financial reports that everyone running any type of commercial operation should have. Of course, if you have any questions, the bookkeeping service in Irvine can help you out.
The Cash Flow Statement, this is probably my favorite statement, it shows all your transactions, how you are earning your money and how you spend it. I particularly like this document because it clarifies beyond any doubt, the choices that you make regarding money. The activities that you can see in this statement are things such as debts, loans, payments, inventory, equipment, etc. This is a significant statement for everyone that is analyzing better ways to manage money.
The Balance Sheet, it is a document that shows your financial health, it will provide the “ugly truth” so to speak. This statement is a list of everything that is worth considering within your company or your business. The components seem simple enough to understand, assets, liabilities and equity. If you don’t see how this document could be of any use, let’s put it this way, it will show your company’s net worth. With this, if you work part-time as a freelancer, you would be able to find out very quickly if your business is worth your time and effort or not.
And last, but not least, the P&L (Profit & Loss) Statement, this document, also known as the income statement, is about the information gathered over a specific period of time, about costs, profits or losses, expenses and revenues, what it shows is the ability (or inability) of a commercial entity to generate profit by either increasing revenue or cutting off costs. Depending on the accounting method of your choice, the results may vary. And you must be thinking, well, yes, but this is something I can figure out without a bookkeeper. The answer is, yes you can, the difference between finding on your own or having it done by a professional service resides in the source of the information and the way you present it. You get to see in the same document your revenue, your costs of sales, marketing and advertising, technology, selling, general and administrative, taxes, etc. When you get all this information together and you compare your numbers with previous statements, you can actually find out if you are spending too much here or there or if your revenue increased, but your net income decreased and actually do something about it.
So, there you have it, the three financial statements that will actually help you understand your business and make informed decisions regarding the way you make and spend your money and the best way of investing your time and efforts. If you are not familiar with this information and you want to find out more about it, contact the bookkeeping service Irvine and start improving your financial life today.