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.
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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.
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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.
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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.