After you have written your first business plan and your business is in the early stages of running, you’ll need to start monitoring your finances.
Basically, there are three key statements you need:
All three of these are critical to the financial lifeblood of your company and they will determine the growth of your business.
A balance sheet is a document which contains what your business owns or its assets. It also highlights the things you owe to your creditor or the liabilities. It is important to keep track of what you own, and what you need to pay for to avoid further problems.
On the other hand, income statements, also known as profit and loss statements, are documents which contains information if your business gained profit or not in a certain period of time.
The statement you’ll probably refer to the most is the cash flow statement. It contains information that links the balance sheets and the income statements. Its main purpose is to determine the movement of cash in your business. This is actually the most important among the three because it informs you if you still have enough cash in your business to pay for your expenses and investments on a daily, weekly, monthly and quarterly basis.
Before, it was such a daunting task to keep track of these things – you need to face tons of papers, calculate and input numbers manually, etc. But today, thanks to technology and various developments in the business industry, you can keep track of these financial statements simply by using online tools which are highly accessible.
If you are not yet familiar with these tools – don’t worry! They are easy to use and pretty simple to learn by yourself or with the support your accountant. The trick is to spend time using them and getting comfortable with them in the initial stages when your learning curve is high. Once you use them more regularly, it will become simpler and simpler to use and a great time to outsource them to a bookkeeper.
Sure, you may hire an accountant to monitor these statements for you since they know much more about the numbers and how to analyze them. However, it is still important that you at least have a good understanding about the basics of your businesses’ accounting and financial matters. It is also better if you personally know what is going on with your business, especially the numbers, so that you will know whether your business is smooth sailing or is already nearing the verge of bankruptcy.