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How to Review Financial Statements from Previous Year

As a small business owner, reviewing your financial statements from the previous year is an important step in planning for success

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As a small business owner, reviewing your financial statements from the previous year is an important step in planning for success. Your financial statements provide valuable information about the financial health of your small business, and by reviewing them, you can identify areas for improvement and make informed decisions about the future of your small business.

Here are some tips for reviewing your financial statements:

‍Start with your income statement. Your income statement, also known as a profit and loss statement or P&L, is an integral part of managing a healthy business because it shows your revenues, expenses, and net income (or loss) over a given period of time. By looking at your income statement, you can see how much money your small business made and where that money came from. This will help you identify trends and areas for improvement, such as increasing sales or reducing expenses. You may even be able to identify new opportunities or potential problems before they become serious issues. An income statement can also be used to compare how two different businesses are doing financially. Lastly, an income statement can be used by your accountants or tax professionals to prepare taxes accurately. The information provided in an income statement can provide them with the necessary data to accurately calculate taxes for your shop, restaurant or online store. Income statements are an important tool for businesses of all sizes and can be used by everyone from small business owners to large corporations. Whether you’re a potential investor, a business owner, or an accountant, understanding what an income statement is and how to read one will help you make better decisions about your finances.

‍Next, review your balance sheet. As a business owner, evaluating your small business’ financial health is an essential responsibility. A balance sheet offers an optimal way to gain a swift and accurate overview of the current financial wellbeing of the organization, you need to ensure long term success. Every aspect of this document, such as the assets, liabilities, and equity information that are all included, offer greater insight into the company’s worth and capacity to pay its debts. It allows for informed decisions when it comes to allocating resources within the business or creating strategies for any changes that may require at a later date. The importance of keeping on top of your balance sheet should not be underestimated; harnessing this tool effectively is essential for gaining updated knowledge upon your company’s standing.

‍Look at your cash flow statement. Your cash flow statement shows the flow of money in and out of your business over a given period of time. By looking at your cash flow statement, you can see whether your business is generating enough cash to cover its expenses. This is important because even if your business is profitable on paper, if it doesn’t have enough cash to pay its bills, it won’t be able to survive. A cash flow statement can be read by breaking it down into three main categories: cash flows from operating activities, financing activities, and investing activities. Operating activities include the purchase and sale of goods or services, while financing activities involve taking on debt or issuing dividends. Investing activities include buying or selling assets such as property, equipment, or investments in other companies. These categories help provide an overview of the company’s overall financial health.

Common challenges small business owners encounter with cash flow statements include lack of understanding of the terminology used, difficulties in separating out operating activities from financing activities and investing activities, and keeping track of multiple sources of cash inflows and outflows. Additionally, reconciling the cash flow statement with the balance sheet can be a challenge.

‍Compare your financial statements to previous years. By comparing your financial statements to those from previous years, you can see how your business has changed over time. This will help you identify trends and areas for improvement. For example, if you see that your revenue has increased but your expenses have also increased, you might want to look for ways to reduce expenses or increase revenue even more.

Look for red flags. When reviewing your financial statements, be on the lookout for red flags that might indicate potential problems.

  • Unexpected decreases or spikes in cash reserves.
  • Significant drops in assets or liabilities from one period to the next.
  • Inadequate allocation of funds for long-term assets such as property, plant, and equipment.
  • Unusually high expenses that suggest a problem with vendor relationships or fraud.
  • Overdue accounts receivable that could indicate slow payments from customers.
  • High inventory turnover rate compared to previous periods, which could signal problems with customer demand or supply chain delays.

This is a step you don’t want to overlook. While it can prove to be tedious for a novice small business owner, it could save you thousands in the long run. If you see that your expenses are increasing faster than your revenue, this could be a sign that you need to cut costs. If you see that your business has a lot of debt, this could be a sign that you need to find ways to improve your cash flow.

‍Use your financial statements to make informed decisions. Once you have reviewed your financial statements, use the information they provide to make informed decisions about the future of your business. For example, a cash flow statement can be used to measure how well the business is managing its cash, while a profit and loss statement can be used to monitor sales and expenses. Additionally, a balance sheet will provide an overview of the company’s assets, liabilities, and equity. If you see that your business is profitable but has a lot of debt, you might want to consider paying down that debt to improve your financial health. On the other hand, if you see that your business is not generating enough cash to cover its expenses, you might need to find ways to increase revenue or reduce expenses. Comparing financial statements year-over-year can help small business owners identify any trends or changes in their financial health.

In conclusion, reviewing your financial statements from the previous year is an important step for small business owners. By looking at your income statement, balance sheet, and cash flow statement, you can get a sense of your business’s financial health and identify areas for improvement. By comparing your financial statements to those from previous years and looking for red flags, you can make informed decisions about the future of your business.

Now that you’re informed about what your past and future business prospects look like, you can determine if additional working capital is right for you.

‍If you’re a small business owner who needs up to $500,000 in working capital to purchase inventory, hire seasonal staff or invest in marketing, Fundomate’s small business funding program or our new interest-free program may be the solution for you. Unlike other traditional forms of loans and financing, Fundomate’s working capital product for small businesses does not impact your credit score, require a personal guarantee, or set restrictions on how or what you can use your funds for.

‍Plus, the process is not only quick and easy but offers attractive advantages:

  • get funded within one business day
  • no restrictions on how you use the funds
  • generous eligibility requirements including a minimum of $10,000 monthly gross revenue, 12 months or more of business history and a low minimum credit score of 600 and above

Contact us today to see how we can help you get ready for the biggest shopping day of the year with up to $500,000 in working capital or up to $20,000 in interest free small business funding.