Small Business and Self-Employed

A Simple Guide for Small Business Owners

Your financial statements tell the story of your business—where the money comes from, where it goes, and how healthy your operations really are. But if you’re not a numbers person, opening your profit and loss report might feel like reading a foreign language.

Here’s a clear breakdown of the key financial statements every business owner should know—and how to actually use them to make smarter decisions.

1. Profit & Loss Statement (P&L)

Also called: Income Statement

This report shows your revenue, expenses, and profit over a set time period (usually monthly, quarterly, or annually).

What to Look For:

• Top line: Total income or revenue

• COGS (Cost of Goods Sold): Direct costs tied to your product or service

• Gross Profit: Revenue minus COGS

• Operating Expenses: Overhead like rent, payroll, marketing, and software

• Net Profit (Bottom Line): What’s left after all expenses—your actual business profit
  
  

How to Use It:

• See if you're making money (and how much)

• Spot trends: Are sales growing? Are expenses creeping up?

• Know your break-even point
  
  

2. Balance Sheet

Shows your assets, liabilities, and equity at a specific moment in time—like a snapshot of what your business owns and owes.

Key Sections:

• Assets: What your business owns (cash, accounts receivable, equipment)

• Liabilities: What you owe (credit cards, loans, unpaid bills)

• Equity: The difference (your net worth in the business)
  
  

How to Use It:

• Check your cash position

• Monitor debt and credit use

• Measure business stability—can you cover short-term obligations?

Why Understanding These Matters

Most business owners rely on their bank balance to make decisions. That’s dangerous. A full set of financial statements:

• Helps you price your services properly

• Highlights slow-paying customers

• Flags unnecessary spending

• Gives you leverage with lenders, partners, and potential buyers

Don’t Just File It—Use It

A good set of financials should be:

• Current (monthly is best)

• Clean (accurate categorization)

• Useful (aligned with your goals)
  
  

Need help reading yours or setting up a system that gives you clarity? Contact Us

Choosing the right accounting method is critical to accurate books and tax filings. Here’s a quick breakdown:

Cash Basis Accounting

• Income is recorded when received.

• Expenses are recorded when paid.

• Ideal for: Sole proprietors, freelancers, and service-based businesses.

Pros: Simpler, better cash flow visibility
Cons: Can distort financial performance for growing businesses

Accrual Accounting

• Income is recorded when earned (even if not yet paid).

• Expenses are recorded when incurred.

Pros: More accurate picture of financial health
Cons: More complex, requires bookkeeping support

Tax Tip: Businesses with over $25M in gross receipts (3-year average) are required to use accrual. But even small businesses may benefit if they invoice clients regularly or carry inventory.

Not sure which method you’re using—or should be? We help businesses clean up their books and choose the best-fit method.

Contact Us to learn what’s best for your business.

Bad bookkeeping isn’t just messy—it’s expensive. Here are 5 common mistakes we see small business owners make:

1. Mixing Business and Personal Expenses

This is a huge audit risk and makes year-end reconciliation a nightmare. Use separate bank accounts from day one.

2. DIY Bookkeeping Without Oversight

Software makes it seem easy, but one small setup mistake (like misclassifying income or not tracking owner draws) can snowball.

3. Forgetting Quarterly Tax Payments

Missed estimates lead to penalties and interest. If you’re self-employed, don’t wait until April.

4. Misunderstanding Payroll Taxes

Even a small underpayment to the IRS can cause big problems. If you have employees, stay on top of withholding and remittance schedules.

5. Not Reconciling Bank Accounts Monthly

If you’re not reconciling, your financial reports could be way off—hurting your decisions and taxes.

Want us to check your books? Contact Us