Financial Statement Guide
Lenders read financial statements before they look at credit scores. Producing clean, accurate, current statements is a foundational discipline of any funded business.
What is business financial statements?
Financial statements are the three structured reports that summarize a business's financial position and performance: the Profit & Loss (income statement), the Balance Sheet (assets, liabilities, equity), and the Cash Flow Statement (operating, investing, financing cash movement).
Why this matters
- Required for nearly every business loan, line of credit, and lease.
- Reveal trends invisible from bank balances alone.
- Drive financial ratios lenders use for underwriting (DSCR, current ratio, debt-to-equity).
How it works
- ›P&L: revenue minus expenses over a period (monthly, quarterly, annually).
- ›Balance Sheet: snapshot of assets, liabilities, and equity at a point in time.
- ›Cash Flow Statement: reconciles net income to cash movement across operating, investing, financing.
- ›Generated from properly maintained accounting (QuickBooks, Xero, Wave) with monthly close.
Examples in practice
Revenue $45,000 − COGS $18,000 = Gross Profit $27,000 − Operating Expenses $19,000 = Net Income $8,000.
Assets $325,000 (Cash $42K, AR $58K, Equipment $225K) = Liabilities $180,000 + Equity $145,000.
Step-by-step process
- 1Set up accounting software
QuickBooks Online, Xero, or Wave.
- 2Close books monthly within 15 days of month-end
- 3Reconcile every bank and credit card account
- 4Run P&L, balance sheet, cash flow monthly
- 5Have CPA review annually before tax filing
Action checklist
- Accounting software in use
- Monthly close within 15 days
- Bank reconciliations current
- P&L produced monthly
- Balance sheet produced monthly
- Cash flow statement produced monthly
- Year-end CPA review
Common mistakes to avoid
- Using bank statements as a substitute for P&L
- Mixing personal and business transactions
- Skipping monthly close — books fall too far behind for lender requests
Frequently asked questions
What's the difference between cash and accrual accounting?+
Cash records income when received and expenses when paid. Accrual records when earned/incurred. Most lenders prefer accrual for accuracy; many small businesses use cash for taxes and accrual for management.
Do I need an accountant?+
Bookkeeper for monthly close; CPA for tax preparation and review. Most funded businesses use both.
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