Most business owners receive financial statements. Far fewer feel confident reading them.

You may look at your Profit & Loss statement, see that sales are up and think, “Great—we’re doing well.” Or you may notice there’s less money in the bank than expected and wonder, “Where did it all go?”

The truth is, your financial statements are telling you a story about your business. The challenge is knowing what to look for.

Start With Three Questions

When reviewing your financial statements, try not to focus only on whether the final number is positive or negative.

1. What changed? Are sales increasing or decreasing? Have payroll costs grown? Are certain expenses suddenly much higher than they were six months ago?

2. Why did it change? Was the increase intentional? Did you hire someone? Raise prices? Add equipment? Lose a major customer? Take on financing?

3. What should we do with that information? Sometimes the answer is simply, “Nothing—this is exactly what we expected.” Other times, the numbers are pointing to something worth investigating.

Your Profit & Loss Shows More Than Profit

Your Profit & Loss statement helps you see how the business performed over a period of time. But don’t just look at total sales and the bottom line.

Look at the relationship between the numbers. If sales increased by 20%, but payroll increased by 40%, is that producing the result you expected? If revenue is steady but profit is declining, which expenses are changing? If one area of the business is growing rapidly, is it actually your most profitable area?

Financial statements become much more useful when you start comparing months, years and percentages rather than looking at one number in isolation.

Your Balance Sheet Deserves Attention Too

Business owners often pay close attention to the Profit & Loss and barely glance at the Balance Sheet. That’s a mistake.

• How much customers still owe you
• How much you owe suppliers
• What the business owes on loans and credit cards
• How much cash is available
• Whether tax and payroll accounts appear reasonable
• What has been invested in assets
• What amounts may be owing to or from shareholders

At Fiscal Performance, one of our bookkeeping standards is simple: Every Balance Sheet account should be supportable and explainable. If nobody can explain where a number came from, that’s a question worth asking.

And Then There’s Cash

A business can be profitable and still experience cash-flow pressure. That’s because profit and cash aren’t the same thing.

You may have made the sale but not collected the money yet. You may have purchased inventory. You may be paying down loans. You may have made a significant equipment purchase. Or cash may simply be leaving the business faster than expected.

That’s why looking at financial statements should lead to a conversation—not just a tax return.

Your Numbers Should Help You Run the Business

Accurate bookkeeping is essential. But accurate numbers sitting untouched in QuickBooks don’t help you make better decisions.

Your financial information should help you ask questions such as:

• Can we afford another employee?
• Are our prices keeping pace with our costs?
• Should we be building a larger cash reserve?
• Are customers taking too long to pay?
• Is one part of the business more profitable than another?
• Are we carrying too much debt?
• Are there risks or opportunities we should be discussing with another professional?

Sometimes the answer is in the numbers. Sometimes the numbers simply tell us which question to ask next.

Introducing Fiscal’s Business Performance Review

Our Business Performance Review is designed to help business owners understand what their financial information is telling them.

We look beyond whether the bookkeeping is complete and discuss what’s working, what’s changing, what deserves attention, and what could be done differently.

When the conversation identifies something outside Fiscal Performance’s expertise—such as financing, insurance, HR or legal needs—we can help connect you with trusted professionals who specialize in those areas.

Because your financial statements shouldn’t just tell you what happened yesterday. They should help you think about what comes next.

Understand your numbers. See what’s ahead. Know who to call.

Interested in taking a closer look at what your numbers are saying? Ask us about a Business Performance Review.