Knowledge is power. Ignorance is weakness. As an entrepreneur, it's critical to arm yourself with the knowledge necessary to make sound business decisions. Without that knowledge, you'll always be at a substantial disadvantage—as if owning and operating a small business wasn't hard enough already. There's no better way to learn about your business than through financial reports. These reports tell a story about your business—from the past to the present and to the future. Sometimes it's a sad story of conflict and loss. Other times, it's a Cinderella story of triumph born from struggle. For your business to experience its happily-ever-after, it's critical you learn where your business currently stands and where it's headed. We know you're busy with owning, operating, and growing your business. It's a lot—we get it. However, effectively running a business is impossible without financial reports. They're an unnegotiable part of managing a successful company. To help preserve your precious time, we've narrowed down the reports you need to analyze. No matter if your business is big or small, whether you go solo with bookkeeping software or you have an entire accounting team, you need to know these 3 financial reports like the back of your hand. These are the reports you should be creating, reviewing, and taking action on month-to-month to keep your business moving in the right direction. 1. Profit and Loss Statement (P&L) The profit and loss statement is also known as the income statement. This report shows revenue generated, expenses incurred, and the resulting profit or loss for a specific period. Often, businesses create these reports quarterly, but you should make it a habit to issue your P&L statement monthly. Ideally, the goal is for your revenue to exceed your expenses (a.k.a. a profit). However, that's not always the case, but you won't know you're incurring losses if you don't frequently generate and check this financial report. If you're profitable month-to-month, then great job. Now look for ways to optimize and grow. If you're incurring losses each month, take a step back and start looking for areas to make changes. You’ll likely be able to find areas for improvement in your cash flow statement (more on that later). 2. Balance Sheet A balance sheet is the complete financial picture of your business as of a specific date. It shows your company’s assets, liabilities, and equity—basically, what your company owns, owes, and how you're financing those resources. You can learn more about the details of balance sheets in this article about building your financial statements. By comparing balance sheets from month-to-month and year-to-year, you can identify trends and make more informed financial decisions. You'll also be able to monitor the key financial ratios that lenders use to determine your company's health: liquidity and leverage. 3. Cash Flow Statement If you take a look at your balance sheet and wonder, "Where the heck did all my money go?" then it's time to take a look at your cash flow statement. This financial report documents all of the ins and outs of your cash over a period of time. If you could only look at one report every month, this is the one you'd want to keep in your back pocket. Your cash flow statement will help you determine if more cash is coming in than going out—a sign of a healthy business. One of the best ways to use your cash flow statement is to predict future cash flow. Data-backed estimates will help you budget and make important financial decisions. If your cash flow isn't looking so hot, it may be a sign you need to acquire temporary financing to fill the gaps. Or perhaps you need to cut some of your expenses. Using These 3 Financial Reports The combination of your P&L statement, balance sheet, and cash flow statement make up the standard financial statement package. Alone, each of these statements reveals valuable—sometimes hidden—insights into your business's health. Combined, there are very few questions about your business that they can't answer. In the best-case scenario, your reports will verify that your business is operating smoothly and on a healthy growth trajectory. At worst, you'll discover significant weaknesses to act on and improve. Uncovering these vulnerabilities early on will give you time to make strategic business decisions to recoup and recover. That's why we encourage you to generate and look over these reports every month. If you wait 3–4 months to analyze your financials, you may not be able to dig yourself out of a deep, deep hole. If you're a small business owner with enough on your plate already, take a load off your shoulders with bookkeeping software. Software like Lendio's can automatically create and deliver these financial reports—meaning fewer spreadsheets and calculators for you. That also means less time crunching numbers and more time doing what you do best—running the business. You're busy, so don't spend hours drowning in numbers. Stick to these fundamental reports. Armed with the financial knowledge these reports provide, you'll have the know-how and insights necessary to propel your business forward.