FLORIDA SMALL BUSINESS DEVELOPMENT CENTER AT IRSC
UNDERSTANDING OF YOUR FINANCIAL STATEMENTS
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FINANCIAL LITERACY — BUILDING A BETTER
TCBusiness.com
The financial statements of the organization
are the written record of its operations
and its history. The statements can
be used as a basis for the planning of its
future. Your organization’s financial literacy
can be thought of as its ability to “read and
understand” the critical financial statements
of the organization.
A more informed understanding of the
financial operations and financial structure
of the company can contribute to better
decisions and improved management
of the company’s operations. Likewise,
an uninformed financial understanding
can lead to poor decisions that lead to
disappointments and possibly disastrous
results. There are three critical documents
that serve as the foundation for your
financial literacy: the income statement,
the balance sheet, and the cash flow statement.
Each individual document provides
information on one aspect of the organization’s
financial situation.
Each document reveals an individual aspect
of your organization’s financial operations
and fiscal health. Together the set of
documents can provide a valuable insight
into how your organization is performing
and how well it is situated in the competitive
marketplace.
THE INCOME STATEMENT
The income statement specifies information
on the revenues that have been
earned in the current planning period
and presents the expenses and costs of
providing and delivering the products and
services to your customers. The surplus (or
deficit) of the revenues compared to the
expenses will be the profit (or loss) of the
organization. This view when examined
will provide you with information on how
well your organization is executing its
functions in the marketplace. Are you doing
the right things the right way?
THE BALANCE SHEET
The balance sheet provides information
on assets you have in the organization and
will give you an understanding of how you
have paid for these assets. The importance
of the balance sheet is in the understanding
of how the assets you have in the
business, your inventory, your plant and
equipment, and your working capital are
positioned to support your targeted sales.
With this understanding, the liabilities
section will guide you in structuring the
financial capabilities of your company to
provide the capital and funds to pay for
your assets. Do you have the right assets in
place to support your organization? Have
you paid for these assets with the right
liabilities? Are you properly capitalized to
support your targeted sales goals?
THE CASH FLOW STATEMENT
The cash flow statement is an important
and most often overlooked component
of the tool set to help in your financial
literacy program. The cash flow statement
provides a view of the linkages between
the income statement and the balance
sheet, and with this view can provide
a valuable insight into the time-driven
nature of the “flows of funds” in and out of
the business. Is your cash flow structure
properly aligned with the cash flow cycle
from your inventories through your receivables
and into the bank accounts? Does
your business need to plan for seasonality
in your operations or do you need to cope
with long lean times between the first
contact with the customer and the eventual
receipt of the customer’s payment for
the delivered goods and services?
APPLICABILITY OF FINANCIAL
LITERACY TO MY BUSINESS
Business owners and managers often
ask, “How does financial literacy apply
to my business?” “I am a not-for-profit
organization; does financial literacy apply
to me?” Or, “I am a small business, I am
the only employee; does financial literacy
apply to me?” Simply stated, every business
needs to be able to understand its
financial operations. The management of
each and every business, large or small,
one employee or hundreds of employees,
must be able to understand the financial
implications of its operational decisions
and business practices.
NEXT STEPS TO IMPROVING
MY ORGANIZATION’S
FINANCIAL LITERACY
The most important step in improving
your organization’s financial literacy is the
action of taking the first step. Any step is
better than not moving forward. One easy
first step is to enroll in a program that will
provide a comprehensive approach to
increasing your financial literacy. One program
available to help in this effort is the
Profit Mastery training workshop provided
by the Florida Small Business Development
Center at Indian River State College. In this
program, the Florida SBDC business consultants
can help you as a business owner
and assist your team and employees to
increase your financial literacy. This helps
you and your team thoroughly review
and understand your business financials,
so you are able to apply specific tools to
improve financial viability and profitability.
This program will help your company and
organization to better manage your business
using the balance sheet, profit and
loss statement, and cash flow statement.
This course will also give you the tools
to track your business ratios against industry
standards set by your peer organizations
and to identify specific areas where
you can improve efficiency and create
more working capital. To learn more about
how you and your team can join in the
Profit Mastery financial training program,
call 772.462.7631. v
BY SPIKE SCHULTHEIS
With responsibilities involving a wide
range of business environments, including
technology, consulting and venture
development, Spike Schultheis held sales
and marketing management positions for
over 40 years. His experience includes work
within the areas of internet and broadband
network architecture design, network
deployment planning, sales and marketing
program development, and consumer
market launches. Spike’s work focuses on
business to business segments, energy and
telecommunications utilities and federal,
state, and local government sectors. He
is proficient in the emerging electronic
commerce technologies and has developed
forecasting applications and complex business
financial models to support new technology
venture financing and development
initiatives. He earned a bachelor’s degree
at Princeton University in economics and
sociology and received his MBA in marketing
from the Wharton School of Business at
the University of Pennsylvania.
/TCBusiness.com