Small Business Tips

The simple way any business owner can read financial statements

Barry Moltz

Too many small business owners don’t review their financial statements monthly. They think they have all the necessary information in their head. But without accurate financial reports, you will never maximize the growth of your company.  

It’s essential that every small business owner learns how to read their financial statements. Like so many things in small business, you can’t use your fear or lack of knowledge of numbers as an excuse. Here’s where to start:

Financial statement terms you need to know

A profit and loss statement reports the sales the company made and what it cost to generate that revenue. It lists the revenue, expenses, and profit of a business over a period of time.  

The basic components include:

  • Revenue: This is a business’s sales, resulting from customers buying your products or services.
  • Cost of goods or services (COGS): This is defined as the direct cost of producing sales. COGS can be raw materials, products for reselling, and labor.
  • Gross profit: The difference between sales and cost of goods. This is also known as the gross margin. The higher the gross margin, the better.
  • General expenses: Types of expenses include things like rent, people, insurance, utilities, telephone, and travel.
  • Net profit: Understood as the difference between gross profit and general expenses. The result is how much total profit the company made from its sales. Taxes and depreciation are typically deducted from net profit.

Comparing your previous financial statements will help your analysis of your profit and loss statements. You’ll be able to identify trends when you compare this month’s statement to last month’s or to the same month last year.  

Download MileIQ to start tracking your drives

Automatic, accurate mileage reports.

Determining what you own and owe

A balance sheet lists the money or other things of value you own and what you owe to others. It also measures the ability of a company to pay its debts. The basic components of a balance sheet are:

Assets: What the company owns. This can include:

  • Cash: How much money the company has in the bank
  • Accounts receivable: The value and how long the money has been owed to the business
  • Inventory: The value of the inventory. This is the price you bought inventory at
  • Fixed assets: Examples include equipment, computers, and property purchased

Liabilities: What the company owes. This can include:

  • Accounts payable: The money the business owes vendors
  • Loans: The money the company owes banks and other sources

Owners’ equity: The assets minus the liabilities. This can include:

  • Stock: Paid-in capital to start the company
  • Retained earnings: Profit retained in the company since it started

Key metrics to review

One of the most important metrics often missed on financial statements is the “quick ratio” on the balance sheet. The quick ratio, also referred to as an “acid test,” is the business’s current amount of assets divided by current liabilities.  

Banks favor the quick ratio metric as it provides a measure of the financial stability of a business and the ability to pay its bills. In most industries, the quick ratio should be greater than 1:1. It shows the company has more cash available than current money it owes. When the quick ratio goes below 1:1, your business may not be able to meet its financial commitments.

There are many good resources available to learn how to read financial statements monthly. Get help from your accountant or bookkeeper, or educate yourself online. Remember, your accountant is an advisor, not an adversary.

What’s a Rich Text element?

The rich text element allows you to create and format headings, paragraphs, blockquotes, images, and video all in one place instead of having to add and format them individually. Just double-click and easily create content.

Static and dynamic content editing

A rich text element can be used with static or dynamic content. For static content, just drop it into any page and begin editing. For dynamic content, add a rich text field to any collection and then connect a rich text element to that field in the settings panel. Voila!

How to customize formatting for each rich text

Headings, paragraphs, blockquotes, figures, images, and figure captions can all be styled after a class is added to the rich text element using the "When inside of" nested selector system.

Download MileIQ to start tracking your drives

Automatic, accurate mileage reports.

How have you been tracking your miles?

Start tracking drives automatically with MileIQ!
Get Started