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  • Robert Schwinn, CPA

Which Financial Reports Should a Small Business Owner Review?


Without formal education or a background in accounting, it can be hard to know which financial reports you should review to understand how your business is performing. There are two reports in particular that I recommend you regularly review to stay current on the financial health of your business. Accounting software such as QuickBooks Online makes it easy to generate these reports after all of the information has been entered and updated for a period of time.

I recommend that a “balance sheet” and “profit & loss” report be reviewed periodically, whether monthly, bi-monthly, or quarterly. The two reports serve different purposes, which we will explore in this article.

Profit & Loss Statement

A profit & loss statement (also commonly referred to as an income statement) is essentially a summary of your business income and expenses over a given period. Typically the different income items for the period would be listed at the top, followed by a summary of categorized expenses, with the net profit calculated at the bottom. For example, a profit & loss report could be generated for a month, a quarter, or a year. Income and expenses would be categorized by types, such as office supplies, advertising, or insurance, to name a few. To help visualize, below is a basic example of the typical format of a profit & loss statement.



Balance Sheet

A balance sheet is essentially a snapshot of a company’s assets, liabilities, & owner’s equity at a given point in time. Assets would include items such as bank accounts owned by the business, as well as equipment, furniture, and other property owned by the company. Liabilities are amounts owed to vendors/creditors, such as credit cards and loan balances. The owner’s equity represents amounts the owners have contributed to the business and undistributed profits. A balance sheet will categorize assets and liabilities and show balances for the assets, liabilities, and owner’s equity at a specific date, such as December 31st. To help visualize, below is a basic example of a balance sheet.



Comparative Reports

One of the best ways to gain valuable insights from a profit & loss report or a balance sheet is to view the reports on a comparative basis. For example, viewing a profit & loss report that compares the current quarter to a prior quarter will allow you to see the differences in performance between the two periods. If the historical information is available, I recommend reviewing a profit & loss statement that contains the monthly profit & loss statements for the prior twelve months. Having twelve months of side-by-side profit & loss information will allow you to see the trends and variances from month to month more easily.

Periodically Review Your Financials

It can take some time to get familiar with the information contained in the two reports. Still, once you are comfortable with and understand the information, it can go a long way in making better-informed business decisions. Periodically review your financial results, either on a monthly or quarterly basis.