The easiest way to figure out
health of your company is by reviewing your financial reports. Don't start pulling your hair out yet. There are a few key reports you should, at bare minimum, be reviewing regularly on a monthly basis. Those reports are your income statement (A.K.A. P&L or profit and loss statement), your balance sheet and your cash flow statement. "Easier said than done, you say"? Well it is not so hard if you have a little useful information under your belt. The income statement shows activities of business during period covered. It shows income and expenses of business during that period and profit or loss that result. To put it simply name is just as it implies. It is a snapshot of whether or not you made a profit. Keep in mind you must look at all your financial reports and not just one report, to get a true gauge of your company's well being.
You must ask yourself following questions when reviewing you income statement:
1. How much profit did you expect to have? 2. If you are at a loss, what caused it? 3. Are your expenditures too high? 4. Is your pricing too low?
Once you have been reviewing your reports regularly, it will be easy to pick out any inconsistencies. Hopefully, with any luck, results from your income statement won't be a surprise and you will have a net profit. If you are at a loss, now is time to take a closer look and come up with viable solutions to turn things around quickly, faster better. If you can not come up with useful answers to above questions, you should definitely consult with your financial professional.
The balance sheet is another report that should be monitored on a regular and consistent basis. The balance sheet shows your assets, liabilities and capital at a specific point. It should be generated monthly, quarterly or annually when books are closed. The balance sheet is a snapshot of worth of your company. Assets-Liabilities =Net Worth
Assets-An asset is anything you own or value.
Liabilities-Liabilities are debts your business owes.
