Company Financial Statements: A Guide for New Entrepreneurs

What Are Company Financial Statements?

There are three main types of financial statements that you need to know about. The balance sheet, the profit and loss statement, and your cashflow statement:

Balance Sheet

• What it is: A balance sheet is a snapshot of what your company owns (assets), owes (liabilities), and the value left for you, the owner (equity) at a particular point in time.

• Why it’s important: It helps you gauge your business’s net worth and financial stability.

Profit and Loss Statement (P&L)

• What it is: A Profit and Loss Statement - or (P&L) - is a summary of your business’s revenues, costs, and expenses over a historical timeframe, usually the previous month, quarter, or financial year. 

• Why it’s important: It reveals whether your business is turning a profit or incurring a loss, helping you assess your venture’s viability.

Cash Flow Statement

• What it is: A Cash Flow Statement is a document that tracks the cash entering and leaving your business.

• Why it’s important: It provides insights into your company’s liquidity, showing how well you can meet short-term obligations.

Why Are Financial Statements Crucial?

For new entrepreneurs, getting to grips with these financial statements should be at the top of your to-do list for several reasons:

• Performance Analysis: They’ll help you assess your business’s financial performance, spotlighting areas for improvement.

• Investor Relations: These statements are essential for attracting investors, as they demonstrate your business’s fiscal health.

• Strategic Planning: They’ll help you to set financial goals, develop strategies for growth, and make informed business decisions.

• Loan Applications: When applying for loans, you’ll need these documents to show your company’s financial standing.

Linking Financial Statements with Business Plans

Your financial statements and business plan go hand-in-hand. Your financial statements provide the hard numbers to substantiate your business strategy, while your business plan outlines your business objectives and how you plan to achieve them.

• Incorporate Financial Data: Use your financial statements to outline projections and validate the feasibility of your business model in your business plan.

• Highlight Fiscal Health: Showcase your financial statements in your business plan to illustrate the financial robustness of your venture to potential investors.

• Strategic Alignment: Ensure that the insights derived from your financial statements align with the goals and strategies outlined in your business plan.

Conclusion

By understanding and integrating them into your business plan, you lay down a solid foundation for informed decision-making, attracting investment, and steering your venture towards sustained growth and success.