Let's look at two key reports that can help you achieve your business goals.
The Income Statement.
Your income statement answers the question, "Am I taking in more money than I am spending?" [See "Net Profit or (Loss)," at bottom of example.] This report helps you assess how you are doing against your expectations (your budget). Careful monitoring of income and expenses allows you to spot and correct any deviations before they turn into major problems.
For example, let's assume that you anticipated $15,000 of revenue from strawberry sales by the end of August. However, a check of the income statement on July 31 shows that you are on target to make only $10,000. You can then go to work and analyze the reasons for the shortfall. Poor crop? Harvesting problems? Weak marketing?
By monitoring your income statement, you keep a close watch on your targets, which allows you to avoid surprises and cut your losses. For example, if you expect freight expenses to be $800, and you see they are $1,400, you will question the difference. You may find that you double paid a bill, or that you paid for express service when standard delivery would have been adequate. By monitoring your actual income and expenses versus your budget, you can take steps to correct problems and understand their causes.
The Balance Sheet.
A balance sheet provides a statement of your net worth. Your net worth goes up or down based on activity among your assets and liabilities.
Accordingly, you should think of net worth as actually an evolutionary concept rather than an isolated number. It becomes more relevant when you compare it from one month to another, or one year to another. It is a snapshot of your business today, and becomes more important when you compare it to the snapshot of your business at another time, such as one year ago. For example, what is my business worth today, and how did it change over the past six months?
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