NASE Blogs

Financial Statements

Monday, December 14, 2009
Q: I have a 1-year-old business and need a simple way to determine my break-even point. I also need determine whether I need to adjust my prices and expenses or find more customers to manage my cash flow and get my profits up.

A: Here is a link for understanding and calculating break-even: .

While I don’t dissuade you from using break-even calculations, they are a low priority for the ongoing financial management of a business. The most critical financial management tool for any business is the profit and loss (P&L) statement. Your monthly and year-to-date P&L information is the only way to determine if the business is profitable and whether that profit is growing or shrinking.

To fix a cash flow problem, you must decrease expenses and increase revenues. Your financial statements are the only tools that will give you an item-by-item overview of the business. They’ll show you which costs are going up or becoming out of proportion with revenues. Accurate financial statements are the only management tools that can help show you where you need to change pricing, control expenses and make other adjustments.

Developing good financial habits is one of the most common challenges for small-business owners. Religiously generating monthly profit and loss statements and using them to manage your operating costs and pricing strategy is a priority if you want to build your profits.

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