Can You Read Them?

On February 10th, 2011, posted in: Uncategorized by 0 Comment

Your financial statements, that is. Many business owners don’t understand their financial reports. Sometimes it’s not their fault! Sometimes the chart of accounts is not structured to provide information in a meaningful way. Since these reports are vital tools in your decision-making process, it’s important to get them set up appropriately.

Here are some tips for meaningful financial statements:

  • Combine items under a heading like Administrative Expenses, Occupancy Expenses, Marketing Expenses, Owner Expenses, etc. Alphabetical is the standard order for QuickBooks, but it is not the way to get useful reports.
  • If your business is an S Corporation, put all the owner expenses as Other Expenses. This will show you the profitability of your business before you took money out for your salary and expenses. Don’t forget to include your portion of the payroll taxes here.
  • Uses Classes when appropriate. If you have a partnership or a project-based business and you want to see income and expenses by partner or project, setting up classes will easily show the profit for each.

When I speak to groups of business owners on “The Art of Keeping Score: Playing the Game of Business to Win,” the handout has a sample set of financial statements that we often recommend to our S Corp clients. If you would like a copy of it, send an email to Admin@TheAccountantsOffice.biz.

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