January 22, 2021
How do I assess my business’ financial health as we enter the new year?
As a new and -- let’s hope -- better year begins, now is a good time to take the financial pulse of your business.
A simple financial assessment requires you to identify your assets and liabilities, understand your expenses, project your sales for the coming year and calculate your projected profit. When you’re finished, you should better understand what you should be charging, whether you need to add or reduce inventory, roll out a new product – and more.
A financial professional can provide great help. Still, there’s much to learn from a do-it-yourself assessment that looks at three important financial reports:
- Your year-end balance sheet – A balance sheet provides a snapshot of your business’ net worth. It includes your assets, including your equipment, inventory, property and cash, along with your liabilities, such as loans, credit card debt and outstanding payments. Subtract your liabilities from your assets and you’ll know how much equity you have in the business.
- A cash flow statement – It’s very possible for your business to be profitable on paper, but cash-poor as you invest in inventory or await customer payments or seasonable sales. A cash flow statement that summarizes all of the cash entering and leaving your business can help you evaluate whether you’ll have the cash on hand to pay expenses throughout the year. It can also be a helpful tool in planning purchases and assessing a long-term outlook.
- An income statement – This financial report shows your business earnings minus your expenses over the previous month, quarter or year. It provides a clear picture of your profitability over that period. These figures can be helpful as you put together sales forecasts and expenses for the future.
