It is important that when you look at the financial results of your business you look at the right numbers for the right reasons.
Is the business profitable?
The Profit and Loss statement will tell you if you are making a profit. This means, in broad brush terms, that the sales generated in the period are greater than the total costs in the periodof making or buying the goods and services you sold and, the costs of running the business during the period.
Is the business generating cash?
The Cashflow statement will show whether the cash you received in the period is greater than the cash you spent in the period.
Where is the money tied up in the business?
The Balance Sheet will show why there is not as much cash in the bank as you hoped. It will show you how much capital is tied up in the day to day running of your business.
When you look at the numbers in your business make sure you look at all three of the above statements as each will give a different view of your business. The trick is to make them all work together.
This is just a brief overview of the finances. I’ll expand on this in future ramblings.
