Why It’s Important To Understand Financial Statements

Most of us didn’t start our business because we had a dream of being an accountant. However, as we learn through the journey, financial management is one of the most important skills we need to succeed as entrepreneurs.

Financial management is the ability to plan and control company finances, a huge component of that being, reading financial statements. But why is it so important to understand our statements, and how does this skill fuel our business success? Let’s jump right into it.

First, who here sees their financial statements as a bunch of boring numbers on a page? We get it – at least that it can seem that way. But our statements are so much more than that! Behind every number, there is hidden (and exciting!) information about our business’s financial past, present, and future. The numbers connect to form what we like to call our business’s financial story – an accumulation of every financial decision we have made. And you guessed it, it is our job as entrepreneurs to piece the story all together.

To uncover our financial story, we need to take a deep dive into our business’s three interconnected financial statements:

1. The Balance Sheet ( Shows what a company owns, what it owes, and what it’s worth)
2. The Profit and Loss Statement ( Shows how a company is earning a profit)
3. The Cash Flow Statement ( Shows how cash flows in and out of a business)

Once we have a sound understanding of our financial story, don’t just forget about it, use it!

Our financial story can be a powerful decision-making tool in all aspects of business, providing us a clear picture of our company’s financial health and equipping us with the knowledge to make the most informed financial decisions. When using it, we can see what is working in our business and what isn’t working and make adjustments as follows. For example, we may need to optimize day-to-day operations, reduce unnecessary expenses, prioritize cash flow, and much more. We cannot stress this enough, being in control financially is a sure-fire way to secure our company’s long term future.

Just imagine running a company where we don’t know what our financials are telling us. It would be hard to trust in ourselves and our financial management. It would be hard to feel empowered as an entrepreneur – especially when the time comes to approach a banker or possible investor. And it would be difficult to grow our businesses to their maximum potential. So as we can see, proper financial management sends us on a straight path to success. But in order to maintain on that path, we recommend to:

● Have a research-backed business plan
● Have a process in place to handle the bookkeeping/accounting and reviewing the monthly financial statements
● Prepare an annual budget and weekly cash flow forecasts
● Have the courage to make changes when necessary and ask for support if needed

We hope this article inspires you to connect to your financial statements in a whole new light and see past all the “boring numbers.” Financial statements are invaluable to company success by offering informed insights into how your company best operates. So read, analyze, and utilize: that is how you master business financial management.

Here at The FInance Cafe, we are helping transform financial education for entrepreneurs through our blogs, conversations, financial wellness program, weekly podcasts, and social media platforms! Join our community of like-minded entrepreneurs ready to strengthen their financial literacy skills and feel empowered by their business financial decisions.

Educating and elevating women entrepreneurs through our podcast conversations, our business financial literacy program, and our social platforms. We are changing the narrative around money, transforming financial education for women, and helping entrepreneurs feel capable, confident, and connected to their businesses.

Shannon Pestun + Shauna Frederick


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