By creating and reviewing financial statements, you’ll be able to quickly determine which parts of your business are making or losing money, if you’re making enough money to cover expenses in the future and whether your business is growing or shrinking.
The three main financial statements are:
- The balance sheet. The balance sheet can help you understand your business’s finances at a specific point in time. You can use it to better understand how much money you have to invest in the business, debt you need to repay and what your ownership of the company is worth. Learn more and download a free template.
- The profit and loss statement. The profit and loss statement can help you understand if and how your business is making or losing money, along with the different types of expenses you’re paying. Learn more and download a free template.
- The cash flow statement. The cash flow statement can help you understand when money will actually enter or leave your account, which can help you manage your business’s ongoing financial needs. Learn more and download a free template.
There are also other types of reports you can use to monitor and manage your business, but these are the three main financial statements. They can help guide your business decisions and investors and lenders will likely want to review the statements before agreeing to lend you money. Your financial statements can be important for other reasons as well. For example, you'll want to include them in your business plan and the numbers from the statements can help you prepare your tax return.
Small business accounting software can create these financial statements for you. Alternatively, you can create your own financial statements based on your business records.