REPORT ON PROGRESS
Understanding your financial reports
What are the three key financial reports every business owner needs to understand? Here’s a plain-English breakdown.
Understanding Business Financial Reports — Profit & Loss, Balance Sheet, Cash Flow
In business, your financials centre around three reports. Here’s what each one actually means.
Profit & Loss
This shows whether your business is making a profit. It adds up your income, subtracts your expenses, and tells you whether you’re ahead or behind. The format is: Trading Income minus Cost of Goods Sold, plus Other Income, minus Overhead Expenses. Simple in theory — but getting it accurate requires good data entry and, eventually, an accountant.
Balance Sheet
This is a snapshot of what your business owns versus what it owes. Assets include bank accounts, equipment, and money owed to you by customers. Liabilities include loans and money owed to suppliers.
Cash Flow
This is the one that catches most business owners off guard. Profit is an accounting concept — cash flow is whether your bank account is going up or down. A business can be profitable on paper and still run out of cash. At the start, a simple spreadsheet or even a piece of paper tracking money in and out is enough. As you grow, this becomes one of the most important reports in your business.