The first few years in the construction industry weren’t always the easiest. Landing new jobs, finding good employees, and managing finances were only some of your concerns. Now, with a little more experience under your belt, you’ve learned how to deal with these daily complications a little easier. You’ve discovered a niche in the industry, found some good employees, and realized the benefits of construction accounting.
Your business is steadily moving forward, but still not as profitable as you’d like. What can you do to remedy this? Many business owners look to their financial statements for answers, but still struggle with understanding all the information. Knowing how to interpret these documents allows business owners to make the best decisions for their company. For this reason we’ve put together a short guide to help make reading your Balance Sheet and Income Statement a little easier.
Reading Balance Sheets
Think of the balance sheet as a snapshot of your company’s current financial status. It shows a summary of your company’s assets, liabilities, and owner’s equity. Knowing how to read and interpret your company’s balance sheet can be beneficial for making present and future financial decisions. Can your company purchase new equipment? Should you hire new employees? Balance sheets can help answer these questions.
Let’s start with Assets. Assets are things you own. Could be equipment, buildings, or accounts receivable. Balance sheets show how much these assets are worth. Next up is Liabilities. Liabilities are financial debts or obligations your business has to account for. This could be salaries, wages, interest, or taxes. Owner’s Equity is how much an owner has invested minus owner withdrawals plus net income. The equation can be simplified to Assets = Liabilities + Owner’s Equity. This can provide a limited glimpse into what a company is worth.
Reading Income Statements
Income statements, also known as Profit & Loss statements, provide a look at your business and how it’s financially performing over a certain period of time. Many businesses choose to do monthly income statements to keep up with ever-changing finances and make the best decision for their company. Income statements calculate a company’s net profit by taking gross income (what you’ve made) minus direct expenses and overhead expenses (what you’ve spent). Armed with income statement information, business owners can determine how well their company performed in a given period. They can determine if the cost of a certain job was worth the revenue it created; which also helps with future decision making.
If you’ve still got questions about financial statements that help your construction business, we can help. Executive Resources: Financial Services, Inc provides construction accounting services to companies of all sizes. We can help you determine how well your company is performing, determine job costs, assist with job costs resolution, prepare for taxes and much more. Use our contact form below to get started.