So what exactly do we mean when we talk about financials? In most cases, this term includes the balance sheet, income statement and cash flow statement. These three documents give an overall picture of how much money is coming into a business, how much is being spent and what is left over as profit when the spending is done.
The balance sheet shows what assets your business has, what you owe and what is left over after you pay off your debts. The cash flow statement shows the money coming into the business and any money going out to cover regular expenses. As its name indicates, the income statement shows the income you have accrued over a set period of time.
Sounds pretty open and shut. How could records like these, if they are kept accurately and updated regularly, fail to show you what you need to know about your business? The answer to that question begins to make itself clear when you consider the other factors involved in the day to day operation of a small or medium sized enterprise, which can be drastically different than those of a larger business.
With SME’s, there can be many outside influences that affect the operation of the business. These can include market fluctuations and poorly handled management estimates, both of which can have a drastic effect on profits. The smaller the business, the more difficult it can be to keep up with the competition and even the slightest deviation in the market can put your profits into a nosedive.
At the same time, while most business owners are inherently honest and go into the compilation of financials with the best of intentions, there must always be room for human error. Estimates can sometimes be off and that can skew the bottom line far more for a smaller business that literally relies on every single dollar coming in than it would for a larger business with hundreds of customers where it can be easier to balance things out.
Also, outside factors like the state of the economy, the emergence of competition and changes in technology can also influence smaller businesses heavily and these kinds of influences can’t always be easily tracked within a company’s financials. So why rely solely on financial statements to gauge your businesses health when there are better ways to go about it?
That’s a good question and one every small business owner needs to take into consideration for his or her own peace of mind. Fortunately, you can get the help you need to wade through your financials and determine the other ways to track your business with the help of a business coach. That’s what I’m here for and if those financials are giving you a major headache, I’m happy to help you find a way to start making them work for you.