Introduction To Financial Statements (Part 2)

July 1, 2008

In Introduction To Financial Statements (Part 1), we talked about why it’s important to learn to read financial statements and discussed in detail the balance sheet.

Now, let’s look at the income and cash flow statements.

Income Statements

An income or profit loss statement is a report that shows how much you’ve earned over a specific time period. An income statement shows the costs and expenses associated with earning that money. The literal “bottom line” of the statement usually shows the company’s net earnings or losses.

Income statements also report earnings per share (or “EPS”) which calculates how much money shareholders would receive if you distributed all of the net earnings for the period. Read more

Introduction To Financial Statements (Part 1)

July 1, 2008

Financial statements are important as they show you where your money comes from, where your money is, and where your money has gone in your business.

As a business owner, it is imperative to keep a close eye on your financial position. It may not be as sexy as developing new products or marketing campaigns but it is necessary to your business’s survival.

The good news is you do not need to be an accountant to read financial statements. The basics of accounting are simple. If you can follow a story, you can learn basic accounting. So, anyone can learn to read basic financial statements. Read more

What Is Cash Flow And Why Is It Critical To Your Business?

June 27, 2008

The one thing that can determine the success or failure of your small business is cash flow. So, what is “cash flow”?

The simplest definition is it’s the amount of money you need to keep your business afloat. It’s like the blood in your body. If you run out of blood, you die. So, if you run out of cash, you’re out of business.

An easy way to master this concept is to picture your business checkbook. Will the balance be enough to pay the bills? As it is fairly easy to determine your expenses for at least a few months, will the revenue you expect to receive during that time allow you to continue meeting your obligations? Read more