We work with small business owners and entrepreneurs. Some are seasoned, others are just growing their side hustle. Their skills are varied and they have a wide variety of talents. We often get asked to explain the ins and outs of financial reports and have found that providing our favorite clients with a working knowledge of accounting terms is helpful. With that end in mind, we’re sharing that expert knowledge with you. So if you’re looking to get a better grasp on your small business books, want to understand your financial reports so you can make better business decisions, or even are just starting out and want to do it right… you can check out our word of the week and start expanding your working financial knowledge.
What is an income statement?
An income statement is a report of your business’s profits and losses over a specific period of time. You might also hear people refer to this report as a profit & loss statement or a P&L. When it comes to financial reports, an income statement is one of the 3 main reports you’ll want to review on a regular basis. The reports you’ll want to have on hand are:
- an income statement
- a balance sheet
- a cash flow statement
One of the main things your income statement shows you is the profitability of your business. It outlines your business’s sales and net income or loss after accounting for your expenses. You may have heard people say something about the “bottomline” – well, this is the report they’re referring to. The bottom line on the income statement tells you if you have a net income or loss for the time period the report covers.
How to Put the Info From Your Income Statement To Use
You may be thinking this is all fine and good, but what are you supposed to actually do? Well, that’s a good question that definitely deserves an answer. Seeing an income statement, or multiple statements that cover consecutive or year after year time periods will help you pinpoint what is making your business profitable or have a loss. You can also use your income statements if you’re looking to secure a loan or investors for your business. The biggest help comes when you look at multiple statements and can track the financial activity for your business. You can see if you have seasonal slumps, and even figure out if you need to take a look at and adjust your budget to improve your overall financial health.
Ben Sutton is the founder of Mazuma USA, an accounting firm providing tax, bookkeeping and payroll services to small businesses. Since founding Mazuma, Ben has established himself as an expert in the small business world. He’s still driven by that same desire to provide accounting help to all small businesses – from photographers, bloggers and creatives to lawyers, doctors, and dentists, everyone needs affordable accounting help. Ben is a Certified Public Accountant, and a member of the American Institute of Certified Public Accountants. But Ben considers his greatest achievement and credential to be his happy wife and four children.