You Need These 3 Monthly Financial Statements for Your Small Business

Delving into the financial aspects of your small business might not be the most thrilling task. However, it’s undeniably one of the most crucial steps toward achieving success and growth.  

By keeping a close eye on your monthly financial statements, you gain valuable insights into your business’s financial health, enabling you to identify potential issues early and take proactive measures to address them. 

Here are the most important monthly financial statements that you should focus on:  

Top 3 Monthly Financial Statements for Small Businesses 

1. Balance Sheet   

Let’s kick things off with the balance sheet. This gives you a crystal clear look at your business’s financial health during a specific moment in time. To build a balance sheet, you just need to gather relevant information about your assets, liabilities, and shareholders’ equity.  

In case the terminology is throwing you off, you can look at them like this:  

• Assets: These are all the things that your business owns or controls that have value – cash being a major contributor, but also things like inventory and equipment. 
• Liabilities: These are your business’s debts or obligations, such as loans or unpaid bills. 
• Shareholders’ Equity: This is the portion of the business that belongs to the owners after subtracting liabilities from assets. 

At the end of the day, your liabilities + shareholders’ equity should be the same as your asset value. In addition to assessing your balance, you can also use your balance sheet to determine your debt ratio. To determine your debt ratio percentage, you’ll divide your total liabilities by your total assets.  

The higher the percentage, the more debt. Checking this regularly helps keep this percentage in check according to the industry average.  

So, why is a balance sheet important? Well, your balance sheet gives you a clear picture of your business’s financial standing, helping you understand if you’re in good shape to grow or weather tough times. Plus, seeing any kind of consistent imbalance month over month can give you time to remedy the situation or meet with a financial consultant.  

2. Income Statement 

Next up, we’ve got the income statement. This document, sometimes referred to as a profit & loss statement, tracks your business’s revenues, expenses, and profits. First, you’ll need to determine the following for the period that you’re assessing:  

• Revenue: This is the money your business brings in from sales or services. 
• Expenses: These are the costs your business incurs to generate revenue. For better visibility, you can separate these costs by cost of goods sold (COGS), operating expenses, and non-operating expenses. 

With that information on hand, you can get to work on your income statement. You’ll start with your revenue, then subtract your business expenses. What you’re left with is net income.  

Here’s the formula for future use: Revenue – Expenses = Net Income (profit or loss).  

If your net income value is positive, that means you’re coming out of the month with a profit! However, negative values indicate a loss. 

3. Cash Flow Statement 

Last but not least, let’s talk about the cash flow statement. This document breaks down where your business’s money is coming from and where it’s going. You’ll need to pay attention to three main categories:  

• Operating Activities: Money made from your day-to-day business operations. 
• Investing Activities: Cash flow related to buying or selling assets. 
• Financing Activities: Resulting cash flow from raising capital or paying off debt. 

Simply put, a positive cash flow means more money is flowing into your business than out, giving you room to grow and invest. But a negative cash flow could be a warning sign that you need to tighten the purse strings. 

Analyzing Your Monthly Financial Statements 

Now that you’ve got the lowdown on your monthly financial statements, it’s time to put that knowledge to work. Take some time each month to analyze your statements and look for trends or areas where you can improve. And don’t forget, if you ever feel overwhelmed or unsure, you can always seek professional help. 

At Yeater & Associates, CPAs, we’re more than just number crunchers—we’re your partners in success. From accounting to consulting, we’ve got the expertise and the know-how to help your business thrive. Get in touch with our team today! 

Remember, understanding your finances is the key to unlocking your business’s full potential. So don’t be afraid to dive in and take control of your financial future!