STATEN ISLAND, N.Y. – When you own a small business, you have deadlines to meet, customers to keep happy, orders to fill, products to ship – and a million other tasks on your plate. Although the COVID-19 pandemic presented serious obstacles to businesses on Staten Island and elsewhere around the nation and the world, the tenets of operating a small business cannot be ignored if the commercial enterprise is to survive and flourish.
“Finding the time to work on your business and manage the financials can feel overwhelming for a lot of owners who are knee-deep in the day-to-day tasks of running a commercial enterprise, but managing your business’ finances doesn’t mean drowning in spreadsheets,” said John J. Amodio, chairman of SCORE-Staten Island. “Making the time to manage your finances is a part of what it takes to run a profitable business.”
As explained by SCORE-Staten Island business mentors, there are three basic financial documents – at a minimum – that you can’t ignore: Your balance sheet, profit and loss statement and cash flow statement.
“These documents should be regularly maintained and easy to access in order to have a clear understanding of your business’ financial stability,” Amodio said.
To provide you with a basic understanding of what the three financial documents provide, SCORE-Staten Island is sharing the following explanations:
▪ Balance Sheet
Your balance sheet is a snapshot of your business’ financials at any given moment and shows you if you’re in the red or the black. This financial statement lists your business’ assets, liabilities and equity. These elements together provide your company’s net worth.
▪ Profit and Loss Statement
Your profit and loss statement ( P&L) is your income statement. A P&L summarizes your business’ revenues and expenses during a period of time – usually by fiscal quarter and year. This is the financial statement you’ll use to understand how your revenues and costs impact your profitability.
▪ Cash Flow Statement
Your cash flow statement shows your sources of incoming and outgoing cash over a period of time. Cash flow documents are helpful when assessing performance trends and other aspects of your business that wouldn’t be as evident if you were evaluating your business only on the basis of the balance sheet or P&L.
DON’T DRIVE BLINDLY
SCORE business experts warn that running a business without regularly reviewing these three financial statements is the equivalent of driving a car blindfolded. Together, these documents give you the state of your business's financial health. Without that information, you have no basis for making fact-based strategic decisions for your business.
If you review your company balance sheet, you can learn how much cash you have on hand, how much you owe, and how much equity you have in the business. Your annual profit and loss statement will tell you if you have made a profit and how much of a profit. It also will assist you in preparing your income tax return.
Also, good financial statements are essential if you need additional funding for your business. Any lender will require these documents before providing additional funds.
Setting up and maintaining your business’ balance sheet, P&L and cash flow statements is easier with the help of someone well-versed in business finance, like a SCORE mentor. A SCORE-Staten Island mentor can help you set up and manage these three critical financial documents so you will have a clear understanding of the financial state of your business at any time. Contact a SCORE-Staten Island mentor today.
About SCORE-Staten Island SCORE-Staten Island is dedicated to fostering a vibrant small-business community primarily in Richmond County by providing cost-free education and confidential mentoring to both aspiring and established entrepreneurs. Headquartered at 1855 Victory Boulevard, in the Salmon Real Estate Building, Castleton Corners, the Island organization is Chapter 476 of the nationwide SCORE, a nonprofit association. A resource partner with the U.S. Small Business Administration, SCORE is funded in part through a cooperative agreement with the SBA. All opinions, conclusions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA. For additional information, or to schedule an appointment, SCORE-Staten Island may be visited at https://statenisland.score.org; telephoned at 718-727-1221; emailed at info@SCORESI.org, and visited on Facebook and LinkedIn.