Overview of Common Business Financial Statements

Understanding Common Business Financial Statements

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Improve your ability to understand and interpret the most common business financial statements needed to run your organization.

Financial Literacy is Essential for Running a Thriving Business

PreferredCFO.com cites several business finance challenges being at the heart of why young businesses failed, with financial literacy coming in on the top of the list:

  • 82% – Didn’t understand cash flow or had poor cash flow management skills
  • 79% – Didn’t have adequate working capital at the outset
  • 78% – Didn’t have an effective or well-developed business plan
  • 77% – Didn’t price products or services properly
  • 73% – Didn’t predict sales or costs accurately
  • 70% – Didn’t know what to do to succeed and failed to seek help from those who did

It’s nearly impossible to overstate the importance of financial literacy. While a business owner can learn along the way, having a strong understanding of the financial needs and performance of their company can help them avoid making some of the costly mistakes that can hurt an organization.

This need only grows over time, from knowing how much money you need to start up, to understanding when it’s time to make changes in your business. Paying close attention to the common business financial statements produced each month, quarter or year can give you invaluable insights into sales trends, vendor costs, payroll and other business expenses so that you can take action before a small problem escalates.

Overview of Common Business Financial Statements

What is a Balance Sheet?

The balance sheet shows an organization’s assets, liabilities and net worth. The organization’s assets must be equal to the sum of its liabilities (debts) plus equity in order to balance.

Assets are items an organization owns that have value; meaning, they can be sold or leveraged to make services or products which can be sold.

Liabilities are debts owed by the business to another organization or individual.

Net worth, or equity, is what an organization would have if all assets were sold and all liabilities satisfied. An organization’s net worth belongs to its owner and/or any and all shareholders.

What is an Income Statement?

The income statement shows how much revenue, or income, an organization earned over a specific time period (often over a quarter or year). And it also shows the costs and expenses attributed to earning that revenue.

The commonly used phrase, “the bottom line…” is derived from the actual bottom line of the income statement because it shows an organization’s net income or net loss after costs and expenses are deducted.

What is a Cash Flow Statement?

While income statements have a bottom line of net earnings or loss for a given period, cash flow statements show the movement of cash in and out of an organization.

Understanding the flow of cash going in and out of your business is important because you need to know whether you have enough money coming in to cover operating and capital expenses. It can also help show you where your cash is coming from (or whether activities, such as operating activities) are not generating enough cash to cover operating expenses.

So what if you do have slow cash flow? Apart from growing your business or increasing sales, another way to speed up cash flow is to factor customer invoices instead of chasing down payments. Some companies do this on an on-going basis until they have grown to the point that incoming revenue from sales more than cover business expenses. Other companies choose to factor invoices only occasionally or to spot-factor invoices in order to free up working capital to meet payroll, invest in emerging growth opportunities, pay vendors more quickly for fast-pay discounts, and so on.

The more you understand your organization’s cash flow, the better you can leverage financial tools that expedite working capital. This can help you run your business more effectively and efficiently, or put you in a position to grow your company faster.

Why Understanding Common Business Financial Statements is Important

In business, chances are that sooner or later you will need to be able to read and interpret common financial statements in order to make good business decisions for your organization and avoid costly mistakes.

A better understanding of the financial position of your business can help you determine whether, and how, business financing options like invoice factoring could provide you with expedited working capital or a more consistent flow of cash so that you can focus on growing your business to the next level.

7 Things to Do Before Launching a New Product or Service

Launching a New Product or Service? Do These 7 Things First

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When you’re launching a new product or service, answer these seven questions to ensure it gets the customer attention it deserves and produces the new sales you desire.

Don’t Fly by the Seat of Your Pants! – 7 Point Checklist for Launching a New Product or Service

All too often a stellar product or service launch falls flat simply because the groundwork for product launch success was not done. In fact, data suggests that 64% of small businesses (or even more) don’t even have a documented marketing plan.

What you do before launching a new product or service option could be just as important as the product or service itself. Position your new product or service for faster client adoption using this seven-point new product launch checklist.

7 Things to Do Before Launching a New Product or Service

1. Identify “who” will want it.

If you’re launching a new product, chances are it fits one or more segments of your existing customer base (and target markets) better than others. Or you may be planning to add products or services that will attract new target markets, outside of those your business normally serves. In either case, successfully launching a new product or service requires that you identify “who” will want it.

Based on purchasing history, identify pioneers and early adopters among your customer base, or use your marketing to target pioneers and early adopters among members of your target audiences.

2. Specify “why” members of your target audience should want it.

Value propositions and competitive differentiators aren’t just for brands. You should be able to accurately describe – in detail – why members of your target markets would want any new product or service you plan to launch.

3. Court influencers and put them to work when launching a new product.

Based on purchasing history, identify pioneers and early adopters among your customer base, or use your marketing to target pioneers and early adopters among members of your target audiences.

  • Invite them to pre-launch events
  • Employ their feedback for product or service refinement before the launch
  • Use their comments as testimonials and social proof
  • Invite influencers to sample new products or services and share their experiences on social networks
  • Share recommendations from celebrities and experts on your social networks and marketing communications

4. Create anticipation and demand before launching a new product.

Initiating communications about a new product or service beginning weeks – or even months – prior to its launch gives you the ability to create anticipation among your customers and prospects. Additionally, by creating demand prior to a product or service launch you will have a better idea of the level of product inventory (or service supplies) you will want to have on hand for the launch period.

5. Extend a no-risk trial proposition.

Money-back guarantees, free add-ons and other incentives can help to allay any concerns that your customers or prospects may have about trying a new product or service.

6. Make it an offer too good to refuse.

Reward those who are willing to pioneer adoption of your new product or service by extending a special trial period offer, free gift with purchase, financing options (for big-ticket items), or another inducement that makes it easier for customers and prospects to say “yes” than it is to say “no thanks” when it comes to trying your new product or service.

7. Create urgency.

Special offers and incentives should be time-limited, so that your customers are encouraged to try new products or services before they disappear. Likewise, if sales are less than anticipated or less than needed to keep a newly-launched product or service in your line up, encourage customers to purchase and to recommend it to their friends, co-workers or loved ones in order to step up demand.

You might also like: How-To and Marketing Tips for Vendors Selling on Zulily

5 Small Business Superpowers Big Rivals Can’t Touch

5 Small Business Superpowers Big Rivals Can’t Touch

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It’s not always about growing to the next level. Some of the small business superpowers your not-so-big business has are things larger competitors lack, which might mean staying small is better for your organization.

Mergers, Acquisitions and Partnerships – Oh My! 5 Benefits of Keeping Your Small Business Small

If it seems like a lot of companies got bigger by joining forces in the past couple of years, it’s because they did. Deloitte’s Merger and Acquisitions Trends report for 2019 found that 79 percent of responders anticipated they would close more deals over the next 12 months, up from 70 percent in 2018. In addition, more than 80 percent planned to sell off assets in 2019, up from 70 percent the year before.

It can be difficult to watch social media feeds and newswires light up with stories of larger competitors making acquisitions, merging with other companies and forming partnerships for lead acquisition, especially when you know that there are things your small business does better.

Rather than worrying about competing on scale, it might be smarter to leverage those things a small business can do that larger rivals cannot, to make your business more profitable without actually getting bigger. Since you might not know how to leverage these small business superpowers to outpace bigger rivals, we also included a few tips to help you turn advantages like these into growth.

5 Small Business Superpowers Big Rivals Can’t Touch

1. Access

Unless they go on a reality show like Undercover Boss, most CEOs and executives in large organizations have little contact with real customers on a day in, day out basis. They don’t have a chance to engage in two-way dialogue, collect first-hand feedback about the customer experience or find out what customers wish the brand would do next.

Take every opportunity to listen when customers complain, ask questions, or make suggestions. The insights they provide can tell you exactly what you need to do to make your business better, more profitable and guide your choices when it comes to adding to new products and services.

2. Accountability

In a big organization responsibility for mistakes can be passed along until a furor dies down, and accolades for success don’t always trickle down to the employees who really made the difference. For better and for worse, a small business offers their customers accountability and gives every employee a chance to shine.

Leaders who aren’t afraid of taking responsibility for mistakes, missteps and misfires often earn the respect not only from customers, but employees as well. Take responsibility for the mistake and make the solution happen. Worry about tracking the details back later to ensure product or service performance in the future. Be generous with praise. Make sure that everyone on the team has a chance to shine and understands that the success of the one can only ever happen as a result of the effort of the whole.

3. Agility

Bureaucracy, processes, committees and getting the-powers-that-be to change direction or add new projects mean that big companies will almost always take longer to react to marketplace changes and emerging opportunities than a small business. A small business can react and make course corrections quickly. They can communicate almost immediately with all staff who need to make adjustments. They can move resources and redirect efforts in a short period of time when new opportunities emerge. These small business superpowers enable smaller companies to move faster than big ones.

Agility isn’t a verb; rather, it’s a passive state of energy. A small business that prides itself on agility but never takes action is wasting this small business superpower. Make sure that you have a process for discovering and evaluating suggestions, ideas and marketplace changes so that when opportunity strikes, you can strike right back.

4. Simplicity

As companies get bigger and bigger, it’s not just their offices that start to look like a maze. Trying to figure out who to contact with a question or when a new product or service will hit the floor can be a job in and of itself. A small business can keep things simple. From processes to communication channels and corporate announcements, customers and employees can feel confident that they are in the know about where to go and what’s coming next.

The routes might be clear, but they still need to be mapped. Make sure that you establish methodology for tracking and reporting stats and progress to the team on a regular basis — and then do it — so that everyone knows what they need to do next.

5. Consistency

Big companies are often stretched in many different directions, so much so that departments could even end up working to cross purposes or unknowingly undermine one another with prospects and customers. A small business has the luxury of finding and focusing on a few or even one common purpose. Employees not only understand the mission but can work together to achieve the goals with a minimum of disruption, since communication is practically instantaneous, everyone can be apprised of the status of all the projects underway at any given time.

The more consistent a brand experience is, the stronger the impression can be; but remember that a consistently boring experience might be just as bad as a negative one. Decide what type of customer experience your brand should deliver and what you will do to get it done. Ensure that all staff have a clear understanding of how what they do impacts and have the ability to improve the customer experience.

Regardless of size, your company has small business superpowers big competitors can’t replicate. The question is, have you discovered them, and how will you use them for good?

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We offer small business invoice factoring, a financing tool you can use to expedite cash flow and even create competitive advantages.

Ask us for a free, no-risk, no-obligation small business financing proposal. Get immediate answers and get access to working capital within days of approval – or even faster.

  • Average monthly sales or amount of invoice to factor