Many small and medium size business owners get their monthly or quarterly financial statements and only look to see whether or not they were profitable and then file them away. I had one business owner tell me he really didn’t understand what the balance sheet or cash flow statement meant and was embarrassed to ask.
The truth is, if your CPA isn’t explaining the financial statements to you, at least quarterly, they’re doing you a disservice. As a business owner, understanding profitability of your business is really important and you probably know if you’re having a good month or bad month before you even see the financial statements. But as a business owner, you need to focus on where your cash is going. And as we discussed in a previous blog, net income (or even EBITDA) does not equal cash.
Understanding your cash position helps you make good business decisions: can I hire that person, can I invest in the business infrastructure, and can I get a bank loan and meet the bank’s financial covenants? These questions and others are what your CPA, as a business partner, should help you understand from a review of your financial statements.
If you have questions or would like further information on understanding your financial statements contact Mike Stevenson, CPA, CFF, CFE, ABV at firstname.lastname@example.org or 614-545-9100 ext. 112.