Financial Basics: Three important financial documents to master

Key points

• The three key financial documents worth mastering are: balance sheets, profit and loss statements and cash flow statements.
• As a business owner, keeping good financial records is the key to understanding your business’s financial position and being ready for opportunities.
• Download our templates to get started on each of these important documents. 

Running a business can feel like a steep learning curve. While new business owners have much to learn, understanding the financial basics will help put you in a great position to run a profitable business.    

Financial documents and statements are filled with valuable insights into your business’s performance and viability. Learning how to create, read, interpret and use financial documents and statements will give you a fundamental understanding of your financial position. 

Apart from being a useful tool to help you manage your business, these types of documents are often used by banks to assess loan applications and investors to measure the growth potential of your business.

Three key financial documents worth mastering are: balance sheets, profit and loss statements and cash flow statements. 

1. Balance sheet

A balance sheet is often called a statement of financial position. This document gives you a clear snapshot of your business’s finances at a point in time. It lists the business’s assets (such as your business’s cash, equipment, property, vehicles and stock), liabilities (debts that the business needs to pay) and equity (the value of the assets of the business after its liabilities have all been paid). 

How to produce a balance sheet for your business:

• Download ANZ’s Balance sheet template (xlsx 1.5MB) . 
• Next, fill in all your business’s financial data, including assets, liabilities and equity.

How to use a balance sheet:

• Use your updated balance sheet to get a clearer picture of your business’s overall financial health. 
• Your balance sheet will help you to identify things like whether you’re making enough money to pay for future expenses and whether your business is growing or declining.
• Your balance sheet will also help you with benchmarking against other businesses, applying for loans and securing investment. 

2. Profit and loss statement  

A profit and loss statement shows how your business has performed over a particular period of time. Also known as an income statement or revenue statement, a profit and loss statement will show you where your business has made (or lost) money. 

How to produce a profit and loss statement for your business:

• Download ANZ’s Profit and loss statement template (xls 1.5MB). 
• Then, fill in your sources of income (such as sales, interest and dividends), followed by your costs and expenses (such as insurance, rent, rates, utilities and wages).

How to use a profit and loss statement:

• Use your updated profit and loss statement to identify opportunities for cost savings and areas to invest in. 
• A profit and loss statement can also be a valuable forecasting tool when planning for the financial year ahead. 

3. Cash flow statement

According to the Australian Small Business and Family Enterprise Ombudsman, low cash flow is the leading cause of small business insolvency. So, having healthy cash flow is critical to the future of your business. A cash flow statement will help you keep track of the money entering and leaving your business. Incoming cash can come in the form of sales revenue, grants and rebates. Outgoing cash is the payments your business makes, including rent, wages, rates, utilities and other purchases. 

How to produce a cash flow statement for your business:

• Download our Cash flow forecast template (xlsx 114kB). 
• Opening balance : Your opening balance is your opening bank balance in the first month you create a cash flow statement. In the months ahead, your opening balance will be your closing balance from the month before.
• Closing balance: To calculate your closing balance simply add your opening balance and total incoming cash, then subtract your total outgoing cash.
• Monthly cash balance: Your monthly cash balance is what cash remains in your account at the end of the month. To calculate the monthly cash balance, simply subtract your total outgoing cash from your total incoming cash.

How to use a cash flow statement:

• Getting in the habit of creating and reviewing a monthly cash flow statement will provide important insights to support your business’s operations and growth. 
• Over time, a cash flow statement will help you to anticipate costs and identify trends so you can plan for the future. 

Next steps

As you grow confident with creating and interpreting cash flow statements, download this handy Cash flow improvement checklist (PDF 1.5MB) which is designed to help improve your cash flow further.