Financial reports are essentially the dashboards showing how your business is tracking money-wise. The best founders use these to track their performance towards their financial targets and make smart decisions around where & when to spend or earn their money next.

No matter how big or small your business is, whether you do your own bookkeeping or you have an entire accounting team, there are three reports that all entrepreneurs must know like the back of their hands.

*Most of these reports can be found in the reporting menu of your accounting software

We cover the main go-to reports below:

Balance Sheet

Of the big three accounting reports, the balance sheet is the only one that shows the financial health of a company at a given moment. Instead of listing your business’s income and expenses like the P&L does, the balance sheet essentially provides a snapshot for assets, liabilities & equity held by the company.

Some of the terms you’ll come across are explained below.

Term What is it?
Assets Things of value which can be converted to cash.
Current Assets Assets a company expects to convert to cash within one year.
Non-Current Assets Items a company doesn’t expect to convert to cash within a year.
Liabilities Amounts owed by the business to others.
Current Liabilities Debts expected to be paid off in one year.
Non-current Liabilities Debts expected to be paid off beyond one year.
Equity Money which would be remaining should assets & liabilities be paid out.


Profit & Loss

This report shows how much revenue & expenses a company earned over a period of time.

The P&L is the best view into your bottom line, or net income, which is why it’s typically used to show business lenders and investors whether your company has made or lost money during a given period.

Your business’ net profit is also what will be used to determine its taxable income each year.

Term What is it?
Income Relates to income received during a period of time.
Cost of Sales Any costs that are directly incurred in a sale (i.e. merchant fees).
Gross Profit The profit made from just sales less any direct costs with sales.
Operating Expenses Report on all the traditional business expenses during a period of time.
Net Profit The profit after direct costs and operating expenses are taken up.



Cashflow Statement

Your cashflow statement shows the results of your business cash income and outgoings over a period of time. The cash flow statement combines the P&L and also takes any non-cash transactions into account from operations, investing or financing activities to give you a picture of exactly what happened to company’s cash during that period.

So, if a company gets $1M in capital, but their P&L shows a net income loss of $50k during the same period, their cash flow statement will show a $950k net increase in cash for that period.

Because your cash-flow statement provides a more comprehensive view of how your business operates with its cash, its more often a report of choice by an advisory board.

Term What is it?
Operating Activities Represent normal and core activities of a business that generate cash inflows and outflows – i.e. accounts receivable & payable, inventory.
Investing Activities Represent changes in cash from the purchase or sale of property, plants, equipment or from other long-term investments – i.e. investing, long-term changes to equipment, acquiring or selling assets.
Financing Activities Report cash level changes from shares, as well as payments of interest & dividends to shareholders

To get your business in top shape, we recommend reviewing these reports on at least a monthly basis and aligning the results with your financial strategy.


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