The 3 Financial Reports Every Business Owner Should Know by Heart

If you don't know these three financial reports inside and out, you're probably flying blind inside of your business. And I guarantee you it's costing you money. So maybe you're struggling with cashflow, surprised by unexpected tax bills, or just simply wondering why it feels like your business is making money, but you don't actually see it in your bank account. 82% of businesses fail due to poor cashflow management. Most business owners only check their bank and call it financial management. But today I'm going to give you three reports that are going to change the way you run your business. So you can improve cashflow, reduce taxes, and ultimately scale profitably. Let's get it. What's going on, everybody. Brian Rivera here, CPA, and I wanted to welcome you to my channel. So if you're a new welcome, and if you've been around for a while, I genuinely appreciate the support on this channel. I like to talk about a lot of different topics, mainly revolving around business finance and entrepreneurship. So if you are brand new, don't forget to hit that subscribe button. All right. So here's the reality. Most business owners think that they are making money simply because they have sales, but profit on paper does not mean that you have cash in bank and taxes. Those are normally an afterthought until the IRS comes knocking. One of our firm clients was doing $2 million in top line revenue, but every single month, it seemed like the business was short on cash. Why? Because they didn't track their cashflow statement and the owners were paying themselves from profit that didn't actually exist. Another client was hit with a $75,000 tax bill that they weren't prepared for. Why? It's because they never looked at their profit and loss statement to project their taxable income. At a minimum, you should be checking this monthly, if not quarterly. So maybe you're a business owner in growth mode and your expenses are growing just as fast. If you're not watching your balance sheet, you might wake up one day with debt that's growing out of control. Here are the biggest financial mistakes that I see business owners make every day. So number one is only check in the bank account balance. You feel good when it's high, you panic when it's low, but you never truly understand where the money is going. Number two is going to be ignoring financial reports until it's taxed on. Your CPA probably helps you file your taxes, but are they helping you plan ahead of time? If not, you're just reacting instead of proactively planning. So number three is going to be not using financial data to make business decisions. Would you drive a car without a dashboard? Probably not. So then why would you run your business without any financial visibility? So if you're in this situation, I wouldn't worry too much because there's a lot of business owners, small business owners that are in this same exact space. This is exactly why our firm created a fractional CFO and accounting firm for business owners who want to get proactive about their finances. All right, here are the three reports that you need to master and how to use them like a true CFO. First up is the profit and loss statement. What does the profit and loss statement tell you? It simply just tells you your revenue, which are your sales, your expenses, and ultimately what is your profitability on a monthly basis. And you should be tracking this weekly, but reporting this at a minimum on a monthly basis. Why this report matters. Ultimately, this is going to help you identify where you're bleeding money and how much money you should be setting aside for taxes. And when you start getting into deeper financial analysis, you might start establishing KPIs or key performance indicators around the data that this statement is telling you. One of those could be simply what is your profit margin? And if your profit margin is under, let's say 10%, that's usually indicative of an efficiency problem that you're going to have to look into your business to make sure things are operating. Optimally. All right. So number two is going to be the cashflow statement. The cashflow statement at its most simplest form is really just telling you where is my cash coming from and where is my cash going? So why this report matters is because profit doesn't actually mean cash. This report shows if you're actually liquid at a point in time, especially if you're a business where maybe your payment terms, where you receive cash is not payment on receipt, or there's no any, there's not a retainer payment. And so if your collection terms are net 30, net 45, net 60, you're not always liquid and so you want to make sure that you're liquid enough to cover your current operations. Maybe you focus a little bit more on what is your cash burn rate? Just a quick pro tip. You should be tracking your operating cashflow on a monthly basis to avoid any surprises. All right. So the third statement that you should be tracking is going to be your balance sheet. Now, as a business owner, all the balance sheet is going to tell you is what are your assets? What are your liabilities? And what is your equity? Now your assets.