Thursday, 7 March 2013

How to understand your Financial Statements - let's unlock the mystery!

Have you ever wondered why some business owners seem to make all the right decisions & others can't seem to make any decisions? Part of the reason relates to being able to understand their financial statements, but more importantly interpret the statements, and use them to make decisions that have a positive impact upon business results.

Whether you are a budding business owner about to embark on the journey of starting your own business or you are a seasoned campaigner with many years of successful trading under your belt it is an absolute must that you can read & understand your financial statements.

We can all drive a car (well most of us), but can we all read a road map? To arrive at your destination you need to be able to interpret the information at hand. So whether it's simply driving your car or more importantly, driving your business, you need to have the skills & know how to make the best use of the information available to you.

The critical components of your financial statements are:
  1. The Profit & Loss Statement  
  2. The Balance Sheet 
  3. The Cash Flow Statement 
Each of these components of your financial statements tells a different story, but collectively they tell the entire story of your business. The secrets to growth, profit, cashflow, business value and much more are locked away in these reports. You just have to know how to read them!

Many business owners miss out on the opportunity to improve their businesses because they don't understand how to unlock the secrets contained within their financial statements. These documents should not be for the sole benefit of your Bank or the Tax Office, they are there for you as the business owner.

Today I came across this  straightforward, plain English, simple presentation that provides a great analogy between an apple tree and your Financial Statements. I won't ruin the surprise for you other than to say that (even as an accountant) I found this to be a really useful tool in understanding what it is our financial statements tell us.

Understanding financial statements

So how was it? Does it make a little more sense now? I'd love you to share your thoughts with me.

If you are a business owner that wants to remove the mystery from your financial statements and really drive your business forward then please call or email, I'd be thrilled to assist.

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