Budgeting is just as important to the small business owner as it is to major corporations. It helps control those ebbs and flows that most small businesses experience throughout the year.
By having a budget, the business owner can use the extra money gained to purchase needed products or supplies, to market and promote the business, hire needed employees, and when there is a decline in sales, the monthly budget will prevent the business from failing because the owner knew when to cut back on certain expenditures.
Have you ever considered what’s behind your business profitability and cash flow – good or bad? Is it a matter of outside circumstances, the competition, or something more elusive?
I believe that it really comes down to a matter of choice…and action.
Most people (unintentionally) choose to act like victims when money gets tight, and blame outside forces that they feel are beyond their control. Unfortunately, when we choose the role of a victim, we get a victim’s results.
The biggest influence over your business success is you and what goes on in those 8 inches between your ears!
Now that you are armed with the basic knowledge of what an Income Statement is , it’s important to understand what the Income Statement actually tells you.
- The Income Statement reports the main and any secondary sources of income. For example, Services would be the primary revenue in a Bookkeeping Service. If you had a bank account that earned interest, a secondary source of revenue would be Interest Earned.
- The terms used to describe the revenue will provide a clue about the nature of the organization. For example, Services implies a service company; while Sales Revenue implies a retail or wholesale firm.
- The items listed as expenses are expired, meaning they have no useful value left.
- The result of matching the revenues and expenses yields the Net Income. The term ‘net’ implies that the revenues and expenses have been matched, and therefore there is not an over or under statement of the income (loss).
What an Income Statement does not tell you
Accounting reports take the data stored in your books and present it in an easy-to-understand format. There are different types of reports that each serve an unique purpose. Here is the Balance Sheet.
What is a Balance Sheet?
A balance sheet provides insight into a business’s financial situation at a given time and is used to ensure the books are accurate. It consists of three sections: assets, liabilities, and the owners/shareholders equity.