When it comes to having intelligent financial conversations with your prospects and clients, there are three important financial statements that you should know like the back of your hand. These statements give you the vital signs of the company to which you’re selling.
The income statement: The income statement summarizes the revenues, costs, and expenses incurred during a specific period of time, usually a fiscal quarter or year. This is also known as the P&L, or profit and loss statement. The income statement is powerful because it tells you how much revenue is being brought in, how much they’re spending to generate that revenue, and ultimately, what’s left over.
The balance sheet: The balance sheet summarizes the balances of the business organization as of a specific date, and it includes the assets, the liabilities, and the ownership equity. It is also called the “statement of financial position.”
The statement of cash flows: The statement of cash flows states how changes in the various balance sheet accounts and income affect the cash and cash equivalents, and it categorizes those amounts as follows: operating activities, investing activities, and financing activities. It is also known as the “cash flow statement.”
Understanding these three statements will not only allow you to have more intelligent conversations with your clients, but also get you better prepared to pitch efficiency projects to your own management team.
If you’ve never heard these terms before, or if you’ve always wondered exactly what goes into an income statement, how to draft a balance sheet, etc., I would recommend checking out an online resource called AccountingCoach. You’ll find a wealth of free information about accounting and finance there, and a fee-based premium version that features a deeper dive.