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Introduction to financial statements

Whether you want to enter a new market or sell a new product or maybe just sell your business and move on, you will have the numbers to back up your decision.

There are three key financial statements, which everybody needs to understand. They are the balance sheet, the cash flow statement and the income statement, which is sometimes also known as the profit and loss statement.

So the balance sheet is a snapshot. It shows where your business stands right now and it shows you the assets which add value to your business, the liabilities which you owe to lenders, and the equity, which is the net worth of the business.

The cash flow statement keeps track of all the money flowing in and out of the business, from various sources.

The income statement shows all sources of profit and loss accruing to the business, including a number of items not covered in the cash flow statement.

We shall cover this in more detail in a later video.

Financial statements are especially important when you are asking somebody to invest money in your business. Because they allow you to show how your business makes money. So it tells you how everything in your business is connected.

It's a great way to check whether you are achieving your goals and it's also fantastic for identifying areas of improvement.

For more information on financial statements, head to business.govt.nz

 

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