Every Successful Owner Already Knows
The Small Business Administration, economists, and statisticians who monitor trends in entrepreneurship report that only 67% of new small businesses are still open after two years and only 48%-50% of these same businesses survive the five-year mark. The top two reasons for failure most often cited are poor financial management and lack of strategic planning. After 30 years of supporting women with advisory, business training, and funding, the Women’s Venture Fund still finds that if owners better understand the numbers side of their businesses, they would be more strategic in planning, sustaining, and growing their enterprises.
We are here to give you a basic guide to move through the three key financial reports—the balance statement, income statement (aka profit & loss statement), and the cash flow statement. Let’s lay down this important ground rule: All three statements must cover the same specific time period—for example, the calendar year by quarters (Jan-March 2026; April-June 2026; Jul-Sept. 2026; and Oct-Dec. 2026) or by individual month (June 2026). Choose your excel sheet reporting format and stick to it.
A Simple Glossary
Fixed costs: Expenses that recur on a monthly basis throughout the year; generally, the amount of these debts do not fluctuate by much, if at all. Examples are rent or mortgage, loan and credit card repayments, utilities, internet services, website maintenance, car notes/truck rental, car and business insurance as well as salaries, including your own.
Variable costs: Expenses that are not payable on a monthly basis. Examples include marketing activities, sales commissions, office supplies, equipment purchases and repairs, materials to produce products (also referred to as the cost of goods sold (COGS), and inventory costs.
Contingency costs: An amount that acts as a cushion should an emergency occur such as the installation of an alarm system. Note: In the following month, the following month the alarm’s monthly cost becomes a fixed cost.
Assets: These are items of value that a company owns outright, such as cash, gold bars, and owner’s 401K. These items can be turned into cash almost immediately. Liabilities are items that are not owned by you but owed over a longer period of time, such as bank loans.
Gross revenue: The money generated from the sales of products and services before expenses are deducted. Net income (aka net profit) is the amount of money left over after expenses (fixed and variable costs) are subtracted from gross revenue. This calculation is a key indicator of the financial health of the enterprise. (Note: Businesses can have high gross revenue but low net income if their expenses are also high.)
Profit and Loss Statement
An income statement, also known as a profit and loss (P/L) statement, provides a detailed picture of a company’s financial health within a specific time period. The items are categorized in the statement according to whether they contribute to profitability or detract from it.
There are four elements of an income statement that supply a snapshot of the health of the company: revenues, expenses, gains (e.g., stock purchases or investments), and losses (e.g., write-offs of monies owed by delinquent customer—accounts receivables. The sample P&L above shows a new company which started in 2025 with projections of sales from July 2026-December 2029. Each year the owner records monthly figures on each line; at the end of each year, she converts the statement into an annual report, calculating year-over-year forecasts of the four elements.
