Financial Statement

What is a financial statement?

Financial statements are formal reports that summarize your business's financial activity and position. They take all your bookkeeping data and organize it into standardized formats that help you (and others like banks or investors) understand how your business is performing.

For small business owners, financial statements provide the big-picture view you need to make informed decisions about pricing, expenses, and growth.

The three main financial statements

Most businesses use three core financial statements:

• Profit and Loss Statement (P&L) — Shows revenue, expenses, and profit over a period of time. Answers: Did we make money?
• Balance Sheet — Shows assets, liabilities, and equity at a specific point in time. Answers: What do we own and owe?
• Cash Flow Statement — Shows how cash moves in and out of the business. Answers: Where did the money go?

When you need financial statements

Financial statements are required for tax preparation and are often requested by banks when applying for loans, landlords when signing leases, or potential buyers if you sell your business. Even if no one asks for them, reviewing your statements regularly helps you spot trends and problems early.