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.
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
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?
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
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:
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
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:
This is a huge audit risk and makes year-end reconciliation a nightmare. Use separate bank accounts from day one.
Software makes it seem easy, but one small setup mistake (like misclassifying income or not tracking owner draws) can snowball.
Missed estimates lead to penalties and interest. If you’re self-employed, don’t wait until April.
Even a small underpayment to the IRS can cause big problems. If you have employees, stay on top of withholding and remittance schedules.
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