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  • Writer's pictureJordan Silverman

Decoding Financial Statements: A Beginner's Guide for Small Business Owners

Financial statements can be a maze for new business owners. But understanding them is essential for tracking growth, seeking investment, and controlling costs. Here's a simple guide:

1. Balance Sheet

  • Assets: What the company owns

  • Liabilities: What the company owes

  • Equity: Owner's interest in the company

  • Formula: Assets = Liabilities + Equity

2. Income Statement (Profit & Loss Statement)

  • Revenues: Money earned

  • Expenses: Costs incurred

  • Net Profit: Money left after expenses

  • Insight: Shows profitability over a period

3. Cash Flow Statement

  • Operating Activities: Cash from daily business

  • Investing Activities: Cash from investments

  • Financing Activities: Cash from loans or investors

  • Importance: Tracks where cash is coming and going

4. Statement of Owner's Equity

  • Beginning Equity: Start of the period

  • Additional Investment: Money added by owners

  • Withdrawals: Money taken by owners

  • End Equity: Equity at the end of the period

  • Purpose: Shows changes in owner's interest

Tips for Small Business Owners

  • Start Simple: Use basic accounting software

  • Seek Professional Help if Needed: Accountants can save time and prevent errors

  • Regularly Review: Regular analysis helps in making informed decisions

  • Use Tools like Starfish: Understand and lower costs, increase profits

Financial statements aren't just numbers; they tell the story of your business. Understanding them empowers you to make informed decisions and helps in growing your business sustainably.

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