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KNOW YOUR NUMBERS WORDS James Marshall
In a new Highnett series about numbers, MWM Advisory Director James Marshall explains the importance of financial reports. WHAT ARE YOUR KEY FINANCIAL REPORTS I’m sure you’ve seen financial reports on your business. Your accountant or bookkeeper has
I’ve seen plenty of accountants struggle to understand what the numbers say, so I wouldn’t expect a business owner to be an expert.
THE PROFIT AND LOSS – YOUR SPEEDOMETER
But it is extremely useful to know a few basic
A car’s speedometer shows how fast it is
concepts and words in order to understand
going. This is similar to the profit and loss
probably produced them for you or you might
what the numbers mean and what questions
account, which shows you how fast a business
have had a go at producing them yourself.
to ask the experts.
is moving over a given period: usually over a
But the question is, do you know what they
The main financial reports are the starting
mean? Well, if you’re like most business
point. They are the profit and loss account,
owners, you don’t.
balance sheet and cash flow report. But what
You might understand a bit about the profit and loss, but that’s usually about it. Is this you?
do they mean? Well, a good analogy to explain the different reports is to compare them to the
month, quarter or year. Your profit and loss account includes your sales, costs and profits over a given period. It’s got nothing to do with the health or financial strength of the business, though. It reflects the sales generated in that period,
I’m not surprised business owners get
instruments on the dashboard of a car. Just
confused. Accountancy has a language all of
like the dashboard gives feedback on how a
the costs related to fulfilling those sales and
its own and rules that are hard to get your
car is performing, financial reports show how
the profit or loss after taking the costs away
head around.
a business is performing.
from the sales.
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