If you’re an entrepreneur, understanding the financial side of your business is essential, unless you like going bankrupt. By regularly reviewing these statements and leveraging data analytics tools to identify areas for improvement or uncover discrepancies, you’ll gain greater insight into how well your business is performing.

But what do you do when you don’t have a background in finance, bookkeeping, and accounting, as is the case with most entrepreneurs? Analyzing financial statements will still be a mandatory part of managing a successful business.

You Have Two Options:

1. Book a free consultation with us; you’ll get to describe your unique situation before we discuss the best options for you.
2. Take a crash course on financial statements. Lucky for you, the first class is about to start.

Here’s What You’ll Gain From Financial Statements

Analyzing your business’s financial statements is an important part of any business owner’s bookkeeping tasks, and you should be doing this monthly or quarterly so you can gain insight into the financial health of your business.

Your analysis will give you insights about your income, expenses, assets, liabilities, and net worth. This information can be used to identify areas for improvement, uncover discrepancies, assess financial performance, and more.

Let’s Start With The Basics

If you’re looking to understand the financial health of your business and its potential for success, you’ll need to understand three of the most common statements: the income statement, the balance sheet, and the cash flow statement.

• The income statement documents your business’s income and expenses over a given period of time.
• The balance sheet shows your company’s financial position at a given point in time, including assets, liabilities, and net worth.
• The cash flow statement documents your business’s cash inflows and outflows.

Once you’ve made sure your bookkeeping is accurate and compiled the above three reports, this is where the analysis begins!

Compare Your Performance To Others In Your Industry

You feel like you’re doing alright (considering this economy), and your profits are decent. The truth is, that’s only your perception. Your actual success is relative. And contrary to common belief, your business can thrive regardless of a declining economy. Yes, you’re currently making a profit but if your local competition is making three times as much, you’re likely doing something wrong.

This illustrates the value of comparing your financial performance to industry standards. Look at the income statements and balance sheets of similar companies in your field; you’ll get a better idea of whether your business is objectively under-performing or you factually have the market in a headlock.

Sit Down And Calculate Financial Ratios — It’s Worth It

Analyzing financial ratios is another way to assess performance. Financial ratios measure how well a company is doing financially and provide insight into areas such as liquidity, profitability, efficiency, and solvency. Commonly used financial ratio calculations include:

• Debt/equity ratios
• Net profit margins
• Return on assets (ROA)

How To Read Cash Flow Trends From Financial Statements

Run an analysis on your cash flow trends over time. Identifying patterns in cash flows can help you better understand the health of your business and make sure you’re not missing out on potential opportunities.

If you’re currently thinking “Uh, I don’t have a cash flow statement,” that’s a sign you should book a free consultation with us and we’ll guide you through how to make one and how to interpret it.

For now, you can watch the video below. It’s a step-by-step walkthrough of the different parts of a cash flow statement, red flags to watch out for, and how to make decisions based on the numbers.

Find Your Areas For Improvement

After you’ve assessed your business’s performance and identified any discrepancies, the next step is to identify areas for improvement. This could include:

• Increasing sales with a new strategy
• Reducing expenses — brainstorm how
• Finding ways to increase efficiency
• Revisiting tax deductions for small businesses

Enjoy The Success And Safety Of Your Wisdom

By taking the time to understand the key components of each statement and leveraging data analytics tools to identify trends in your business performance, you can gain valuable insights into how well your company is doing financially. Doing so will help ensure that you’re making informed decisions about your business

Analyzing financial statements can be a daunting task and it’s not for everyone. If you’d rather leave the data analytics to the experts, you’re not alone. At ACM CPA, we’ve heard that story a hundred times — and guess who always comes to the rescue? Book a free consultation with us today if you want to be swept off your feet (by our expertise and insight).