When you start out, cash flow is king. However, over time you’ll start thinking about financial statements as well. There’s actually a ton of resources online about financial statements, which is great. But here’s the thing – if you understand financial statements, you’re in a much better position to know which levers to pull to impact them. And that’s the key – it’s not about knowing how to calculate this ratio or that ratio, it’s knowing what to do with that knowledge.
Using Financial Statements
When you first go online and read about financial statements (income statements, balance sheets, etc.) you get a surface-level view, pick up a few financial ratio formulas and away you go. The key, however, is in the application of this knowledge. If you understand financial statements you can:
- Guard against fraud
- Make financial plans proactively
- Understand which levers to pull to impact your financial outcomes
- Increase the value of your business prior to exit