financial statements - Linkenheimer LLP CPAs & Advisors

Business Owners Should Get Comfortable with Their Financial Statements

Financial statements can fascinate accountants, investors and lenders. However, for business owners, they may not be real page-turners.

The truth is each of the three parts of your financial statements is a valuable tool that can guide you toward reasonable, beneficial business decisions. For this reason, it’s important to get comfortable with their respective purposes.

The balance sheet

The primary purpose of the balance sheet is to tally your assets, liabilities and net worth, thereby creating a snapshot of your business’s financial health during the statement period.

Net worth (or owners’ equity) is particularly critical. It’s defined as the extent to which assets exceed liabilities. Because the balance sheet must balance, assets need to equal liabilities plus net worth. If the value of your company’s liabilities exceeds the value of its assets, net worth will be negative.

In terms of operations, just a couple of balance sheet ratios worth monitoring, among many, are:

Growth in accounts receivable compared with growth in sales. If outstanding receivables grow faster than the rate at which sales increase, customers may be taking longer to pay. They may be facing financial trouble or growing dissatisfied with your products or services.

Inventory growth vs. sales […]

By Linkenheimer LLP|2025-03-26T18:53:13+00:00March 26th, 2025|Advisor, financial statements|0 Comments

Understanding Financial Statements: A Guide for Small Business Owners

For small business owners, gaining a solid understanding of financial statements—balance sheet, income statement, statement of changes in equity, and statement of cash flows—is crucial. Financial statements provide insights into the business’s financial health, cash position, and profitability, and are prepared using specific accounting methods that impact how information is recorded and reported.

The two primary accounting methods are accrual accounting and cash accounting:

Accrual Accounting: In this method, income and expenses are recorded when they are earned or incurred, regardless of when cash changes hands. This approach, required by Generally Accepted Accounting Principles (GAAP), provides a more comprehensive picture of a company’s economic activities and financial obligations, though it can create timing differences between reported net income and cash flow.

Cash Accounting: This method records income and expenses only when cash is received or paid out. While cash accounting provides a straightforward view of cash on hand, it may not capture all assets, financial obligations and income as effectively. It is generally simpler and often […]

By Linkenheimer LLP|2024-11-05T21:18:50+00:00November 5th, 2024|Advisor, financial statements|0 Comments

Financial Statements Tell Your Business’s Story, Inside and Out

Ask many entrepreneurs and small business owners to show you their financial statements and they’ll likely open a laptop and show you their bookkeeping software. Although tracking financial transactions is critical, spreadsheets aren’t financial statements.

In short, financial statements are detailed and carefully organized reports about the financial activities and overall position of a business. As any company evolves, it will likely encounter an increasing need to properly generate these reports to build credibility with outside parties, such as investors and lenders, and to make well-informed strategic decisions.

These are the typical components of financial statements:

Income statement. Also known as a profit and loss statement, the income statement shows revenues and expenses for a specified period. To help show which parts of the business are profitable (or not), it should carefully match revenues and expenses.

Balance sheet. This provides a snapshot of a […]

By Linkenheimer LLP|2020-09-03T20:04:18+00:00February 7th, 2019|business|0 Comments