In the dynamic world of entrepreneurship, understanding your business’s financial situation is important for success. Financial statements provide a clear picture of your business’s money matters. In this simple guide, we’ll walk you through the steps of creating financial statements, helping you make better plans.
What is a Financial Statement
Financial statements show how well your business is doing financially. They help you see if you’re making a profit or facing losses, identify areas for improvement, and attract potential investors or lenders. Financial statements would show the total revenue, expenses, and whether you’re making a profit or facing a loss.
Step 1: Gather Your Financial Data
Start by gathering all your financial records, including sales, expenses, inventory, assets, liabilities, and cash flow data for a specific period (like a month or a year), and ensure that all the numbers are accurate and match the business’s activities during that period.
Step 2: Create the Income Statement
The Income Statement shows your revenue, expenses, and profit or loss. Follow these simple steps:
- Record Revenue: Write down your total sales or earnings.
- Calculate Expenses: Subtract the cost of goods sold (the cost of what you sold) and other expenses like rent and wages from your revenue.
- Get Your Net Income: Subtract total expenses from your revenue to find out if you made a profit or faced a loss.
Step 3: Prepare the Balance Sheet
The Balance Sheet gives an overview of your business’s financial position at a specific time. Here’s what to do:
- List Your Assets: Include things like cash, accounts receivable, and equipment.
- Outline Your Liabilities: List debts and money you owe to others.
- Calculate Your Equity: This is the value of your business after deducting liabilities from assets.
Step 4: Make the Cash Flow Statement
The Cash Flow Statement shows how money moves in and out of your business. It has three parts:
- Operating Activities: Record cash flows from daily business operations, like sales and expenses.
- Investing Activities: Note cash flows from buying or selling assets, like equipment.
- Financing Activities: Include cash flows from funding your business, such as loans or investments.
Using accounting software can make creating financial statements easier and more accurate. Many options are designed for small businesses. Like Simplebks, our software automates the process of creating financial statements, saving you time and ensuring accurate results so you can stay on top of your business’s economic performance. As a small business owner, you should be able to make sense of your finances. It will ensure you ask the right questions and follow important clues and cues.
You can make financial statements manually in a spreadsheet, but Simplebks automates everything, so it’s faster and easier and leaves less room for error. With all your financial information in one place, you can immediately access your financial data whenever you or your accountant needs it.