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Alright, over the last 3 weeks we’ve looked at each of the 3 primary retail financial reports, but they are not totally separate & independent reports meant to stand alone. They all work together to give you the big picture of your business, and that’s what we’re gonna look at today. I’m going to walk through the specific order in which I look at these reports, and I encourage you to start doing the same.

Starting with the Income Statement…

So, to start, I always look at the Income Statement, or the P&L. I want to see how the business performed over the last month. Remember, this is the report that shows all your income & expenses. So, as you’re reading through your report, I also like to compare to prior periods so I have something to gauge the business performance off of.

If you use Quickbooks Online, you can change your date range to view the last couple months as well, and then under the “Display By” choose “ by month” and it will show your P&L report and have all the different months as their own column so you can easily compare side-by-side your financial performance over the last few months.

You can even export this to excel and take some notes to maybe help explain why some numbers are higher or lower than previous months. Make notes of what worked in your business to help drive sales, or maybe what didn’t work so you don’t waste time and money on trying it again later on. And after you read through each line item, you get down to that very bottom number on your report, and that is your Net Income (or Loss).

…Then Moving On to the Statement of Cash Flows…

Now remember, just because you maybe had a profit of $10,000, doesn’t mean that you have $10,000 more dollars in your bank account. And because of that, the report I always like to look at next is the Statement of Cash Flows, because the very TOP number on this report is the Net Income, so it’s just like a continuation of your Income Statement.

Bookkeeping fun fact (yes, bookkeeping can be fun!) – did you know that your Net Income number is the ONLY number that appears on ALL 3 financial reports? If you filter to see your Year to Date numbers on all 3 financial reports, your Net Income number should be the same across all 3 reports.

The Statement of Cash Flows takes your Net Income, but then adjusts it based on how the cash money actually flowed in and out of your account. So, let’s say on your Income Statement, it showed a Cost of Goods Sold of $5,000. That’s the cost of the products you SOLD during the month, and that’s what’s used to calculate your Gross Margin, and eventually your Net Income on your P&L.

But, let’s say during that same month, you actually purchased $7,000 of Inventory. The statement of Cash Flows will show a negative $2,000 line, showing that you bought more inventory than you sold during the month.

Maybe you paid down the balances of different credit cards or loans, or took out Owner’s Draws – all of these would show a negative line item on your statement of cash flows.

So, at the bottom of your Statement of Cash Flows, you’ll see a line that says something like “Net Cash Increase or Decrease for Period” that totals up your Net Income and all the adjustments on the SOCF to show if you had a positive or negative cash flow, overall, during the time period.

The end of the SOCF will also have 2 additional lines after that that says something like “Cash at beginning of period” and “Cash at end of period”, and that “Net Cash Increase or Decrease” number will be the difference between these 2 numbers. And…do you know where those 2 numbers come from?? They come from your Balance Sheet!

…and Ending With Your Balance Sheet

The total of your “Bank account” section on your balance sheet is the number that the statement of cash flows uses at the end of it’s report.

Just like you can do with your Income Statement, you can view your balance sheet by month as well to see how it changes month-by-month. I love looking at the Balance Sheet over time, because it’s really helpful to see how your cash reserves have been either growing/shrinking over time, what your inventory balance is doing, and what your overall debts are looking like.

Another number I love to keep tabs on is the “Total Equity” number, and I like to call this your ‘walking away’ number. It’s the book-value of your business if you chose to close up shop, take all the assets to pay off all your debts, that’s the money you’d be left with. Ideally, you want to see that number growing over time, as it’s an indicator that you have a strong, growing business.

And remember, your Year To Date Net Income will be a line item in that equity section, because a big factor in your businesses’ book value is it’s ability to earn a profit over time.

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So, just a quick recap – all 3 of these retail financial reports should be viewed together for you to get the big picture of how your business is doing financially. 1 statement alone cannot give the full story – right? A company can show a profit but still run out of cash. So, I really want to encourage you to start looking at all 3 of your financial statements and start to get more familiar with looking at the WHOLE financial story.

If you’re more of a visual learner and want to actually SEE all 3 of these reports in action, then I want to invite you to register for my free masterclass where I actually show a real-life example of each of these reports. You can register for it here.