Friday, January 23, 2015

What are your financial statements telling you?

Beth VadeBonCoeur,
Accountant
With the beginning of another year, brings a great time to reflect on the past year, and set goals for the year ahead. We do this all the time with New Year’s resolutions. But, do you do this with your business?

To understand your business better, all owners and managers should review the financial statements of their business at the beginning and end of each year. Financial statements show the strength or weakness of a company, and the success of their operations during recent or historical periods. There are three different financial reports: balance sheet, income statement and cash flow statement.
  • Balance Sheet is a snapshot of the company’s financial position at a single point in time. It shows the assets, liabilities and equity of your company. 
  • Income Statement displays the income, expenses and profit over a period of time. 
  • Cash Flow Statement shows the cash that is being generated by the business and how the business is using the cash.  
I like to compare financial statements from year to year. By doing this, you can determine whether the status of your company is improving or declining. On the balance statement, managers should monitor the level of accounts receivable and inventory. These two areas can grow larger and can cost a company cash flow if not monitored. Debt levels are also a good area to compare from year to year. On the income statement, total sales and net income are always the first thing we look at to see if the company is growing, staying steady or declining. It is also nice to compare these two items over several years.

In the death care industry, sales can fluctuate from year to year. So, by only looking at two years the information may be a little misleading. By comparing expenses from year to year, you can uncover areas in your business where costs are increasing. The income statement can tell management how well they are controlling their costs and compare that to the revenue they are bringing in.

Your financial statements are telling the story of your business. They can show you where the business is succeeding and failing. Are you taking the time to read the financial statements and fully understanding the facts that they are telling you?


This article originally appeared in Trigard Tuesdays, our weekly electronic newsletter featuring information for the funeral industry. Sign up for your free subscription at http://www.trigard.com/tuesdays.

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