Understanding Your Financial Reports
We’ve been on a mission here at DanceBookkeeping.co, working to educate studio owners on the importance of running reports and learning to understand them better; especially financial reports. They provide valuable insights into the financial health of your business.
It’s impossible to assess your business's overall financial performance and identify areas of strength or weakness without them. They provide crucial insight for making informed decisions toward the growth and sustainability of your studio.
Knowing how to interpret key financial metrics such as revenue, expenses, cash flow, and profit margins helps you create strategies to address the areas that need improvement.
There are a few financial statements that you should become very familiar with, as they are foundational to reporting your finances both internally and externally (within your studio and to the government or other outside agencies). These statements include: the balance sheet, income statement, and statement of cash flows. Timeliness and staying up-to-date are crucial, as even the most accurate report loses its value if it is outdated.
Here is a quick summary of those three reports:
Income statement: Reports revenue, expenses, and net income/(loss) for a fiscal period. Focuses on operating results and is usually compared to prior fiscal periods.
Balance sheet: Shows a company's financial position at a specific point in time. It lists assets, liabilities, and equity based on the equation: Assets = Liabilities + Equity. Used to evaluate a company's net worth, financial strength, and capacity for future growth.
Cash flow statement: Summarizes a company's cash inflows and outflows over a defined period. Categorizes cash sources and uses into operating, investing, and financing activities. Reveals liquidity sources and amounts, aiding stakeholders in assessing the company's cash sufficiency.
Revenue reports show the money coming into your business, while expense reports detail the money going out. Assets represent what your business owns, like equipment and property, whereas liabilities are what your business owes, such as loans or outstanding bills. Profitability reports reveal how well your business is performing financially, ultimately indicating whether you are generating a profit or experiencing losses.
Learning to understand your reports can be a game changer for your studio business! It can help you make informed business decisions, benchmark your studio’s performance against itself and other, similar studios. It can help you effectively manage cash flow, ensure sales tax and income tax compliance, identify risks, and better prepare you for opportunities to expand.
Reports may not be your ‘jam’ but as a studio owner, you’re responsible to lead your business and learning to read and understand your reports equips you to do it well!