The Synergy Post

 

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.