

If you are like most small business owners and entrepreneurs, you probably never had a formal course in business finance. Many small businesses leave accounting and financial matters to a hired accountant, or learn a few basics with software such as QuickBooks.
And those start with understanding three statement flavors:
Granted – financial statements aren’t as trendy a topic as, say, mobile advertising or social media.
Balance Sheet
This shows what your business owns and what it owes at a fixed point in time, and provides details about your assets, liabilities and owners’ equity. It does not show money that flows in and out during that period (we’ll get to that shortly).
Income Statement
The income statement shows revenues over a specific time period – i.e. a month, quarter or year – and shows what you spent to generate that revenue. The literal “bottom line” of an income statement shows what the business earned or lost over that period.
Think of an income statement as a stairway. You start at the top with total sales, and then go down one step at a time. At each step, you make a deduction for costs or other operating expenses. At the bottom of the stairs, after deducting all of the expenses, you learn how much the business made.
Cash Flow Statement
This important statement shows inflows and outflows of cash over a fixed period. It’s critical because any business needs cash to cover ongoing costs. While an income statement shows profit or loss, a cash flow statement merely indicates if the business generated cash.
You should also know that a cash flow statement shows changes over time, not absolute dollar amounts at a given point. The bottom line of the cash flow statement shows how much it went up or down for the period.
4 Key Terms and Ratios to Know
Here’s a mini glossary of four key financial statement terms and ratios you’ll also want to know:
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