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As your business grows, you’ll need to complete and submit certain documents to the IRS and state governing bodies for annual reports. One of these important documents is your income statement. Outside of required reporting, the income statement helps companies to understand their current business operations while providing insight for strategic decision-making.
Once you know how to read and assemble an income statement, you’ll be more equipped to understand the financial nuances of running your business.
An income statement reports a company’s income and expenses over a period of time. Along with reporting the current numbers, an income statement might compare one period to another, illustrating changes between those periods. It may be referred to as a profit and loss (P&L) statement or a statement of earnings.
The income statement goes by any of these names. These names provide descriptive clues as to what goes on an income statement and why it’s so valuable.
While some income statements are more complex than others, there are a few universal aspects to each that you should know. These elements provide the bones of your reporting and can help you to evaluate the health of your business.
With these numbers, an owner or manager can better understand the inner workings of their business.
The role of reporting falls to different people depending on the size of your business. If you only have a small staff or operate as a sole proprietor, the burden of assembling an income statement could fall on you. However, once your business grows to a point where you can take on a bookkeeper or accountant, this person can step in and develop your financial reports beyond just an income statement.
You may also decide to outsource financial services like completing an income statement. To do so, you could work with an accounting firm to organize your books and put together these reports or find a freelance accountant to assist.
Regardless of who completes your income statement, it’s important for you to familiarize yourself with income statements and other financial reports to help you gain more data and insight into your business.
If you plan to grow your company, creating and analyzing income statements will become increasingly important. One way to simplify the income reporting process is with a software system that streamlines your reporting. Consider using a tool like Lendio’s software, which can help you send invoices, import expenses, and ensure the accuracy of your reporting.
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Derek Miller is the CMO of Smack Apparel, the content guru at Great.com, the co-founder of Lofty Llama, and a marketing consultant for small businesses. He specializes in entrepreneurship, small business, and digital marketing, and his work has been featured in sites like Entrepreneur, GoDaddy, Score.org, and StartupCamp.
Small Business Tools
7 min read • Aug 12, 2022