Do you know what the single greatest thing an Entrepreneur can do for improving their business?
No, it's not networking.
No, it's not talking to customers.
It's not even reading another book.
It's UNDERSTANDING FINANCIAL STATEMENTS and TAKING ACTION on the data.
Dollar for Dollar- Minute for Minute, there is NOTHING that has a higher Return on Investment for an Entrepreneur than being able to UNDERSTAND and IMPROVE on a companies FINANCIALS.
But for many entrepreneurs, the fact of the matter is - UNDERSTANDING FINANCIAL STATEMENTS is not easy.
It takes time and effort.
Hey, I get it!
Entrepreneurship is a tough path.
Most Entrepreneurs are busy people.
First, their handling unhappy customers...
Next, their pacifying disgruntled employees...
Then their rushing to the next Business meeting...
But, despite this...
Here's the TRUTH about Successful Entrepreneurs.
BUSINESS OWNERS that UNDERSTAND THE NUMBERS WILL do better than Business Owners who don't.
Ever binge watched episodes of Shark Tank? What do you think the Sharks have in common? Despite being in different industries....they ALL Understand the Numbers.
But, what EXACTLY do they understand?
And, what do you NEED to understand?
Let's take a look...
So, what are Financial Statements anyways?
It's pretty simple actually.
Financial Statements ARE simply Progress Reports.
These 'Progress Reports' summarize how a business is doing.
Understanding them would allow you as a Business Owner to diagnose problem areas in a Business and catch problems even before they happen.
Yes, I said BEFORE they happen.
PROBLEM: Financial Statements help you see a drop in Sales.
SOLUTION: You see a drop in Sales - you increase your Sales and Marketing spend.
You get more customers.
PROBLEM: Financial Statements help you see any Inventory balance piling up.
SOLUTION: You do an Inventory check to see what Inventory is obsolete.
You drop your prices to sell the slow-moving stock!
Cash comes in, and you aren't stuck with Inventory in your warehouse which would have eventually become worthless.
Another one down.
See, how easy this is!
But, it all comes down to you understanding your Numbers.
So, you ask -
What Financial Statements should you understand?
The 3 Main Financial Statements you should dig into FOR NOW are-
1. The Income Statement
Perhaps, no other report keeps C.E.O's of Major Conglomerates on Wall Street up at night then the Income Statement.
The Income Statement Reports the company Sales...
It reports the company expenses...
and MOST IMPORTANTLY it reports on a Company's PROFITS!
And on Wall Street....C.E.O. Bonuses are based on this statement.
No wonder it's SOOO important.
It's all about the moneeeey!
The more profits for the company, the fatter the C.E.O.s Cheque!
This is the FIRST Financial Statement I recommend you understand.
So, TAKE a DEEP DIVE into UNDERSTANDING THE INCOME STATEMENT by clicking here.
2. The Balance Sheet
While The Income Statement reports how well a Business has done over a period-
The Balance Sheet reports the RESOURCES a BUSINESS OWNS.
The LIABILITIES a BUSINESS owes.
AND THE OWNERS PORTION of the BUSINESS.
Whatever decisions a Business makes effects one of these areas.
In a nutshell, The Income Statement tells us how a company handles its operations, while the Balance Sheet tells us how well it manages its resources.
TAKE a DEEP DIVE into UNDERSTANDING THE BALANCE SHEET by clicking here.
3. The Cash Flow Statement
Cash is King!
Whatever you prefer.
We prefer to be Gender Neutral on this website.
Since Cash is SOO IMPORTANT in a Businesses life...The Accounting world decided to come up with an entire report summarizing the workings of CASH in the Business.
It's called the CASH FLOW STATEMENT, and you can learn more about it by clicking here.
There are a few other Financial Statements such as the Statement of Shareholder's Equity and the Statement of Retained Earnings which are also important, but I think let's take our learning of FINANCIAL STATEMENTS one step at a time.
Work Hard, Enjoy Life.
The content provided on accountingsuperpowers.com and accompanying courses is intended for educational and informational purposes only to help business owners understand general accounting issues. The content is not intended as advice for a specific accounting situation or as a substitute for professional advice from a licensed CPA. Accounting practices, tax laws, and regulations vary from jurisdiction to jurisdiction, so speak with a local accounting professional regarding your business. Reliance on any information provided on this site or courses is solely at your own risk.
Tax and accounting rules and information change regularly. Therefore, the information available via this website and courses should not be considered current, complete or exhaustive, nor should you rely on such information for a particular course of conduct for an accounting or tax scenario. While the concepts discussed herein are intended to help business owners understand general accounting concepts, always speak with a CPA regarding your particular financial situation. The answer to certain tax and accounting issues is often highly dependent on the fact situation presented and your overall financial status.