The three core financial statements, the Profit and Loss statement (income statement), the Balance Sheet, and the Cash Flow Statement, tell different stories about your business's financial health. Many NJ business owners receive these reports monthly but are not sure what to look for or what the numbers mean. Greg Monaco, CPA walks every bookkeeping client through their financials monthly, highlighting key metrics, trends, and items that need attention.
Many NJ business owners receive financial statements and aren’t sure what to look for.
What Does the Profit and Loss Statement Tell Me About My Business?
Shows revenue, expenses, and net income over a period. Key questions: is revenue growing? Are expenses in line with benchmarks? What’s your net margin?
What Does the Balance Sheet Tell Me About My Business?
Shows assets, liabilities, and equity at a point in time. Key questions: how much cash do you have? How much do clients owe you? What’s your total debt?
What Does the Cash Flow Statement Tell Me?
Shows how cash moved: operating, investing, and financing activities. The bottom line shows net change in cash.
What Are the Red Flags to Watch for in My Financial Statements?
Consistent net losses, declining cash despite profitability, liabilities growing faster than assets, and declining owner equity.
Key Takeaway
The P&L shows whether you are profitable over a period. The balance sheet shows what you own, what you owe, and your equity at a point in time. The cash flow statement shows how cash actually moved. All three together give a complete picture. The red flags to watch for are consistent net losses, declining cash despite profitability (a timing issue), and liabilities growing faster than assets.
Related reading: Cash Flow Forecasting | Does Your NJ Business Need a Fractional CFO? | Why Good Bookkeeping Matters | Bookkeeping services
## Frequently Asked Questions
What are the three main financial statements?
The three core financial statements are the Profit and Loss statement (also called the income statement), which shows revenue and expenses over a period; the Balance Sheet, which shows assets, liabilities, and equity at a specific point in time; and the Cash Flow Statement, which tracks actual cash movements. Together, they provide a complete picture of your business's financial health.
How often should I review my financial statements?
Monthly review is the standard for well-managed businesses. Review your P&L to understand profitability trends, your balance sheet to monitor assets and liabilities, and your cash flow statement to ensure you have adequate liquidity. Quarterly reviews are the absolute minimum, but monthly reviews catch problems before they become severe.
What should I look for on my P&L statement?
Focus on gross profit margin (revenue minus cost of goods sold), operating expenses as a percentage of revenue, net income trends over time, and any unusual or unexpected line items. Compare current month to prior months and to the same month last year. Sudden changes in any category warrant investigation, whether positive or negative.
Do NJ businesses need audited financial statements?
Most NJ small businesses do not need audited financial statements. Audits are typically required by lenders, investors, or government contracts. For most small businesses, compiled or reviewed financial statements prepared by a CPA are sufficient for loan applications and internal management. Audited statements are significantly more expensive and time-consuming to prepare.
