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Which Four Financial Documents are a MUST when it Comes to your Business?


As a small business owner, you are nothing short of insanely busy. You’re likely responsible for most (or all) areas of your business and it can feel like your work is never over. I know you don’t need another task on your plate but one of the mistakes I see among businesses is the lack of attention to financial reporting, reflection of those financials, and adjusting financial strategy.

Every business is at a different stage in its life and some may have the means to hire a CFO or an outsourced CFO (which I would highly recommend) while others may have to do everything themselves for just a little while longer. Either way, you as the owner absolutely need to understand your financials and that starts with these four documents:

1) Balance Sheet


What is a balance sheet? Essentially a balance sheet is a document that reflects your assets, your liabilities, and your shareholder equity. Let’s break it down:


· Assets are anything you own that holds value such as cash the business has, inventory, materials, furniture, real estate, etc.


· Liabilities include the balance of anything you owe so some examples would be mortgages, lines of credit, credit cards, and business loans


· Shareholder equity is the net worth of the company or more simply put, you take the assets minus the liabilities to get your shareholder equity


It’s important to note two things: (1) This a snapshot in time; it doesn’t show you where you spend your money or what you have at the end of the month. And (2) the balance sheet always balances (hence “balance” in the name). For example, if you have $50,000 in assets and $20,000 in liabilities, your net worth/shareholder equity would be $30,000. On one side of the balance sheet, you would have $50,000 and on the other side, you would have $50,000 ($20,000 + $30,000).


So why is this document important?


A balance sheet is important because it is a major indicator of your business’ health. It is imperative you know whether your business’ net worth is negative or positive.

2) Statement of Cashflow

Your statement of cashflow is helpful when determining how money moves in your organization. While the balance sheet is a current snapshot of your business’ worth, the statement of cashflow displays your cash flow over a period of time.

These documents are typically structured to have cash at the top of the document and then all the types of activities listed below that have occurred over a period of time. For example, cash is at the top, then operating activities, then investing activities, then financing activities to ultimately end with the cash available at the end of the period.

Why do you care about cash flow? The simplest way to answer that is: you need to know where your cash is being put to use. You are able to see if you’re spending an unacceptable amount of cash on certain areas of the business and can adjust, as needed.

3) Profit & Loss Statement

I have a feeling that this document is more common amongst most of you reading this post. Why? Because you run a business and you probably got into business to make some sort of profit. You may have other business goals but everyone knows that a business can’t stay afloat without profit.


I can’t stress enough that this document is important. MANY of your decisions will stem from your ability to understand what your business look like from a profitability standpoint. Want to hire an employee? You better know your numbers and whether that’s a reasonable request or not. I would argue that of all of these documents, your total profit (hopefully!) or loss should be something you know off the top of your head, at all times!


Even if you don’t have a CFO, your accountant that files your taxes each year will absolutely have to know all of these details so follow up and ask questions about it. If you have QuickBooks, you can go in and see this figure at any point in time as long as you are up to date with categorizing your income and expenses in there.

Bottom line is look at your P&L and know those numbers for at least three years. I would also encourage a review of this document every quarter, at least.

4) Expense Projections

While most of the documents I’ve shared with you above are commonly known, one that isn’t as “standard” are expense projections. I personally require every one of my business clients to go through the exercise of completing one full year worth of projections with current recurring expenses listed as well as one time or irregular expenses. This document is the only document that you see listed that isn’t looking back; it’s looking forward.


If you want to be an effective business owner you should know what happened in the past, what is happening right now with your business, and plan for what will happen in the future. You can only make proactive decisions if you take the time to document and plan out how you will (or won’t) use business funds. Of course, after the projections are documented, there does need to be a process to see what the actuals looked like and re-adjust as necessary.


While no one expects you to be an expert in finance, there is no excuse for poor business leadership. If you can afford to outsource this type of work, certainly do it! But you still need to know the numbers, even if you aren’t calculating them.

If you haven’t considered hiring an outsourced CFO, that’s a service offered at Minerva Wealth Planning. For a fraction of the cost of hiring a CFO, you can be assured someone is looking at your financials and helping you make the best decisions for yourself and your business.



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