A financial statement is an organized record of a company’s financial activities, offering a snapshot of its current state and outlining future goals and plans.

Creating financial statements for your small business begins with daily accounting. By pulling together and organizing data from your records, you’ll compile your financial statements.

These financial statements play a crucial role in your business plan, helping you attract investors or secure bank loans.

A balance sheet shows the assets, liabilities, and shareholder equity at a given point in time. To create a balance sheet, list your assets on the left side of the page, including cash, equipment, inventory, and other financial assets. On the right side, list your liabilities, such as accounts payable, credit card debt, and bank loans. After totaling your assets and liabilities, subtract your liabilities from assets to calculate owner equity.

An income statement outlines revenues, expenses, and net income or loss over a period. To create an income statement, gather all sources of income during the period, such as sales and rental income. Then, tally your expenses, including materials, payroll, marketing, utilities, and rent. Subtract your total expenses from your total income to find the bottom line.

A statement of cash flow tracks the inflow and outflow of cash, along with the closing balance, over a period. It consists of three sections: operating activities, investing activities, and financing activities.

A financial statement provides insights into the financial health of your business, which is shared with potential investors and creditors.

To ensure consistency and comparability, businesses prepare their financial statements according to the generally accepted accounting principles (GAAP) of the United States. This makes it easier for stakeholders to assess your company’s financial condition compared to others.

Typically, financial statements should include the following components:

A financial plan provides a roadmap of your business from its current state to future projections. Unlike the day-to-day accounting reports, a financial plan focuses on forecasting your business’s performance.

There are two key reasons for including financials in your business plan:

Create a spreadsheet forecasting your sales over the next three years. Organize it into sections for various sales streams and break down the first year by month, with subsequent years on a quarterly basis. Include columns for unit sales, pricing, and the cost of sales, which is essential for calculating your gross margin.

Estimate the costs associated with achieving your forecasted sales. Include fixed costs (e.g., rent, payroll) and variable costs (e.g., advertising, supplies). Factor in taxes and interest, multiplying estimated profits by an appropriate tax rate and calculating interest on outstanding debts.

The cash flow statement tracks the physical movement of money in and out of your business. Use forecasts, balance sheet items, and assumptions to project your cash flow. Established businesses can use historical data, while startups can create projections based on estimated income and expenses.

Your projected profit and loss statement shows the expected performance for the next three years. Use figures from your sales forecast, budget, and cash flow statement. Net profit is your gross margin minus operating costs, interest, and taxes.

Assess your company’s assets and liabilities to determine your net worth at the end of the fiscal year. Include cash, accounts receivable (money owed to you), inventory, property, and equipment. List liabilities such as accounts payable and outstanding loans.

The breakeven point is when your business revenue covers its expenses. Your income projections should help identify this point. This analysis is crucial for potential investors, showing that your business can become profitable over time.

The three essential financial statements for a small business are the balance sheet, income statement, and cash flow statement.

The balance sheet and the income statement are two of the key financial statements prepared by small businesses, along with the cash flow statement.

The four main financial statements are:

: A financial statement summary should explain the purpose of the report, highlighting the company’s financial status and providing stakeholders with information about earnings and expenditures.