Can You Hear What Your Financial Statements Are Telling You?
To achieve the highest levels of success, business and non-profit leaders must rely on financial statements to guide their management strategies and executive decisions. Accurate, up-to-date statements are critical to gauge the true financial health of businesses and non-profits. No business or non-profit can achieve sustained success without ready access to financial statements.
Yet it is more than business leaders who rely on financial statements to help you succeed. These strategically important statements are used by the finance professionals on whom you rely to manage and grow your organization.
- Accountant to prepare your taxes
- Banker to consider extending or making a new loan
- Mortgage company when you apply
- Customers, donors, and vendors
- Potential investors or buyers
Many Leaders Don't Understand Financial Statements
It might surprise you to know that, as important as these statements are, business owners, managers, and non-profit board members often do not truly understand what these financial statements say about their business or organization. They are missing out on real-time access to critical business information and data that can help them move to the next level.
Five Essential Financial Reports Every Business or Non-profit Leader Should Understand
Three are core financial statements – the balance sheet, income statement, and cash flow statement – while the two aging reports provide essential information about money coming in and bills coming due.
Every business owner or non-profit executive (and board member) should understand how to read and interpret these reports.
1. Balance Sheet (a.k.a. Statement of Financial Position)
The balance sheet is a snapshot of the health of your business at any given time. It tells what you own (assets), what you owe (liabilities) and what’s left over (net value). It is only a snapshot, because the numbers change with every business transaction.
2. Profit & Loss (a.k.a. Income Statement)
The income statement tells you how your business is doing within a specified period of time and how much money is available to pay debt and grow the business.
3. Aged Accounts Receivable
An accounts receivable aging is a report that lists unpaid customer invoices and unused credit memos by date ranges. The aging report is the primary tool used by collections personnel to determine which invoices are overdue for payment.
4. Aged Accounts Payable
An accounts payable aging report allows you to view the balances you owe to other companies for supplies, inventory, and services your company receives.
5. Statement of Cash Flow
A cash flow statement is a financial report that describes the sources of a company’s cash and how that cash was spent over a specified time period.
Each of the above statements offers critical information about the performance of the entity. It is even more important to analyze trends across periods.
Quick Guide to Key Financial Reports
To help business owners, non-profit executives and board members better understand how to understand and utilize these essential reports, our own Paula Paisley – Founder and Owner of Paisley Solutions – has set out a simple guide to explain these reports in lay terms and offers her general guidance on how often these reports should be reviewed. (To be clear, every organization will have different needs, so Paula’s guidance is only general in nature.)
| Financial report | What It Tells You | Suggested Review |
| Balance sheet | What you own, owe, and retain | Monthly |
| Income statement | Revenue, expenses, and operating results | Monthly |
| Accounts receivable aging | Who owes you money and how overdue it is | Weekly or monthly |
| Accounts payable aging | What you owe and when payments are due | Weekly or monthly |
| Statement of Cash Flow | Where cash came from and where it went | Monthly |
Good Bookkeepers to the Rescue
Your financial statements are unique to your business. A good bookkeeper can help you understand your statements and how transactions affect them.
In additional to ensuring that your reports are accurate and up-to-date, Paula Paisley and her team at Paisley Solutions can walk you through to how to read, interpret, and understand these crucial financial statements. Get in touch today – we are here for you.