Three financial
statements explained to the non-financial savvy
It has been said before that financials and financial
reporting are the pillars of a business. We all know that financial management
is a crucial part of any business, not only for it to succeed, but also to show
growth and profit. When we start throwing around terms such as balance statements, income statements and
cash flow statements most of us,
including me break out in a cold sweat. But what does this all mean and why
should I [non-financial people] know what this means?
As within any business process, reports are implemented to
give the business leader insight into that particular process. Project leaders
rely on reports to provide clarity on all projects they are working on. It
helps the project leaders in working out time frames, keeping an eye on
technicians and to ensure that deadlines and SLA’s are met.
Delivery or fleet services rely on reports to streamline
delivery routes, delivery times and to manage drivers. HR professionals also
use various reports to assist them in the management of a company’s employees. Staff
progress, disciplinary protocol and leave day management ensure that HR keeps a
company’s workforce happy.
It is safe to say that financial reporting is equally
important in any business environment. Clear and concise reporting on a
company’s financial well-being allows for decision makers to make well thought
out decisions for the company’s future. Financial reporting aids in successful
budgeting and forecasting. Valuable information equals Valuable decision making.
Financial reporting pinpoints certain relationships between
financial areas within a company. A Balance sheet indicates the financial
situation of a business. Plainly put, it indicates the relation between what a
company owns and what it owes. Balance sheets gauge the interactions between
assets, liabilities and equity.
At some point business owners have to ask how well their
business is doing. Is it showing a healthy profit or are they losing money? Income statements report on a business’
profits against its expenditures. Often you will hear people talk about cash
flow issues. Cash flow statements
report on where a business gets its money against where it is spending that
money.
Knowing what balance sheets, income statements and cash flow
statements mean won’t qualify you as a CFO, but it will help you in knowing
what goes on in the mind of finance professionals. To know a little about
something empowers you to explore more and broaden your horizons.