4 Financial Statements to Manage Small Business Finances

Why is understanding cash flow Important?

At the most fundamental level, your company's ability to create value is determined by its ability to generate positive cash flows. Small business stats reflect how getting a handle on your cash flow can mean the difference between success and potential failure:

  • In response to Covid-19 impacts, more than 50% of businesses plan to improve their accounting practices and start budgeting to ensure stable cash flow according to a 2020 TD survey of small business owners
  • Other studies indicate that a majority of business failures are related to poor cash flow management or poor understanding of how cash flow contributes to a business's financial health

Benefits of preparing financial statements

Financial statements can give you a holistic view of your company's finances and help improve profitability.

  • Helps keep you on top of your business's finances and cash flow
  • Provides better understanding of the financial strength of your business
  • Makes it easier to apply for a business loan and prepare taxes

How financial statements can help you run a profitable business

Explore articles on the four financial statements that can help you get started.

Balance sheet

Insight: Determine your current financial situation

Helps you see the financial health of your business at a specific point in time, showing what you own as well as owe.

Statement of owner's equity

Insight: See how much income is being retained or reinvested

Shows the money invested into your business by the owner(s) and changes in owners' equity over a period of time.

Income/profit & loss (P&L) statement

Insight: Find out your business profitability

Provides company earnings and spending over a set time period and info on costs to create your product or service.

Cash flow statement

Insight: How cash is flowing into and out of your business

Shows how well your company generates cash to pay its debt and fund its operating expenses.

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