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We talk a lot about growth, marketing, SEO & all the fun sides of #startups and #entrepreneurship, but there's more to online business than that.
Let's take a crash course in financial statements, shall we?
THREAD
Let's take a crash course in financial statements, shall we?
THREAD
The 3 financial statements businesses issue to report their financial performance are:
Cash Flow Statements
Balance Sheets
Income Statements
@freshbooks has a good tutorial on how to read each of these statements. https://www.freshbooks.com/blog/financial-statements
#Accounting #SmallBusiness
Cash Flow Statements Balance Sheets Income Statements@freshbooks has a good tutorial on how to read each of these statements. https://www.freshbooks.com/blog/financial-statements
#Accounting #SmallBusiness
1. CASH FLOW STATEMENT
1a) The cash flow statement shows actual cash inflows and outflows of a business over time.
It basically measures how well a company manages its cash. @noahparsons and @Bplans explain cash flow statements in this article:
https://articles.bplans.com/what-is-a-cash-flow-statement/
1a) The cash flow statement shows actual cash inflows and outflows of a business over time.
It basically measures how well a company manages its cash. @noahparsons and @Bplans explain cash flow statements in this article:
https://articles.bplans.com/what-is-a-cash-flow-statement/
1b) For a small online business, your cash flow statement doesn't have to be complicated. @scalefactor has a good tutorial on creating your own simple cash flow statement here: https://scalefactor.com/scaleblog/how-to-prepare-a-simple-cash-flow-statement/
2. BALANCE SHEET
2a) "A balance sheet is a statement of the financial position of a business that lists the assets, liabilities, and owner's equity at a particular point in time... The balance sheet illustrates your business's net worth." - @thebalance
https://www.thebalancesmb.com/balance-sheet-definition-2946947
2a) "A balance sheet is a statement of the financial position of a business that lists the assets, liabilities, and owner's equity at a particular point in time... The balance sheet illustrates your business's net worth." - @thebalance
https://www.thebalancesmb.com/balance-sheet-definition-2946947
2b) That image looks complicated but most small online businesses, even #ecommerce, won't have as many spending categories. Keep it simple. A balance sheet simply summarizes:
What you own
What you owe
@Bench walks you through the steps to make one: https://bench.co/blog/accounting/balance-sheet/
What you ownWhat you owe@Bench walks you through the steps to make one: https://bench.co/blog/accounting/balance-sheet/
2c) One of the best graphics we've seen for a simple balance sheet is this one from @WaveHQ.
https://www.waveapps.com/blog/accounting-and-taxes/balance-sheet-example
https://www.waveapps.com/blog/accounting-and-taxes/balance-sheet-example
3. INCOME STATEMENT
3a) An income statement displays the company’s revenue, costs, gross profit, selling and administrative expenses, other expenses and income, and taxes paid. In other words, it shows profits and losses. Here's a @CFI_education guide:
https://corporatefinanceinstitute.com/resources/knowledge/accounting/income-statement/
3a) An income statement displays the company’s revenue, costs, gross profit, selling and administrative expenses, other expenses and income, and taxes paid. In other words, it shows profits and losses. Here's a @CFI_education guide:
https://corporatefinanceinstitute.com/resources/knowledge/accounting/income-statement/
3b) An income statement is used for more than gauging net worth. Use it to find areas of your #smallbiz over or under budget and to find where to cut costs.
Income statement = profit and loss statement
@1BusinessTown has a tutorial for making one: https://businesstown.com/articles/how-to-create-an-income-statement-for-your-small-business/
Income statement = profit and loss statement
@1BusinessTown has a tutorial for making one: https://businesstown.com/articles/how-to-create-an-income-statement-for-your-small-business/
3c) There's a fantastic image from @ForDummies that illustrates the relationship between items in an income statement and items in a balance sheet. They're closely related, but they report different financial accounting information about your business.
https://www.dummies.com/business/accounting/connecting-the-income-statement-and-balance-sheet/
https://www.dummies.com/business/accounting/connecting-the-income-statement-and-balance-sheet/
4. MAKING FINANCIAL STATEMENTS
4a) Financial statements are created in 3 different ways:
With software
By a bookkeeper
By an accountant
4a) Financial statements are created in 3 different ways:
With softwareBy a bookkeeperBy an accountant
4b) You can make these fundamental financial statements yourself with Excel. @Vertex42 has pre-built templates for each statement type:
https://www.vertex42.com/ExcelTemplates/cash-flow-statement.html
https://www.vertex42.com/ExcelTemplates/balance-sheet.html
https://www.vertex42.com/ExcelTemplates/income-statement.html
https://www.vertex42.com/ExcelTemplates/cash-flow-statement.html https://www.vertex42.com/ExcelTemplates/balance-sheet.html https://www.vertex42.com/ExcelTemplates/income-statement.html
4c) There are some nice accounting apps and software that track income and expenses and make financial statements for you. @QuickBooks, @Xero and @WaveHQ are common ones.
@PilotHQ compared all 3 of them so take a look and see which is best for you: https://pilot.com/blog/quickbooks-vs-xero-vs-wave/
@PilotHQ compared all 3 of them so take a look and see which is best for you: https://pilot.com/blog/quickbooks-vs-xero-vs-wave/
4d) If you'd rather focus on making money instead of tracking money, hire a bookkeeper. @Bench is one of the best online bookkeeping services. We haven't used them but they're very highly rated.
https://bench.co/
https://bench.co/
4e) You can also hire a bookkeeper on #freelance sites, like @Upwork.
https://www.upwork.com/freelance-jobs/bookkeeping/
Bookkeepers are less expensive than accountants, so it's common to outsource to a bookkeeper throughout the year, then handoff your records to your business accountant at EOY.
https://www.upwork.com/freelance-jobs/bookkeeping/
Bookkeepers are less expensive than accountants, so it's common to outsource to a bookkeeper throughout the year, then handoff your records to your business accountant at EOY.
4f) Accountants verify and analyze your data to generate reports, perform audits & prepare records, like tax returns. If your accountant does your #SmallBusiness bookkeeping, you might be paying too much. @BNDarticles explains here:
https://www.businessnewsdaily.com/15-accountant-bookkeeper-differences.html
https://www.businessnewsdaily.com/15-accountant-bookkeeper-differences.html
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