Have you ever thought, I know we made more money than our statement shows, or I know we don’t owe that much in taxes; we never have any money! These moments of confusion are usually the result of either an assumption that your data is accurate, or a misunderstanding of how financial statements work.
There are three pillars of a balance sheet:
1. Assets: WHAT YOU OWN – Cash, receivables, equipment, supplies, inventory, land, etc.
2. Liabilities: WHAT YOU OWE – Accounts payable, accrued expenses, bank debt, credit, etc.
3. Equity: NET VALUE – Assets minus Liabilities
When a CEO lacks the financial knowledge to catch nuances in their statements, they are unable to take corrective action to change the results. Once you understand the language of your financial statements, you can interpret what they mean to your organization’s financial health. The numbers on the page are clues. When you learn to read the clues with the big picture in mind, you are better positioned to make sound business decisions. Failing to understand variances, overreacting to numbers on a page, and not catching insufficient and inaccurate data are clear indications that you are a good candidate for external help. As a business owner, noticing when something is amiss is a key element to managing your organization and driving growth.
Do not let a misunderstanding of financial statements be the downfall of your company. Ensure that you and your managers have the right financial management skills. We can assist you in developing accounting practices that will help make your company more profitable. Call us to learn more.
Treasury Circular 230 Disclosure
Unless expressly stated otherwise, any federal tax advice contained in this communication is not intended or written to be used, and cannot be used or relied upon, for the purpose of avoiding penalties under the Internal Revenue Code, or for promoting, marketing, or recommending any transaction or matter addressed herein.