A Simple Guide to Your Company’s Financial Statements

Understand Financial Statements

One statement cannot diagnose your company’s financial health. Put several statements together and you can make smart financial, investment and management decisions. 

Many business owners don’t know how to read their statements and rely on advisors (such as accountants) to tell them the results. Their input is valuable but you need to educate yourself. You must be able to understand your statements so you can:

  • realize the vital role money plays in every business decision
  • determine if you are making a profit or losing money
  • calculate your current and future financial needs:
    • make sure you have positive cash flow for short-term needs
    • make sure your business is growing and will continue to grow

For lending purposes, statements will help you determine:

  • if you can afford to pay a loan
  • the loan amount
  • the loan term (number of years)
  • which assets you should buy vs. which assets should be financed
  • what collateral is available to secure a loan

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