Many business owners do their own bookkeeping as a way to save money and monitor the financial health of their business firsthand. If you do it properly and regularly, you can keep your finances organised and manage problems as they arise.

When managing your books, the most important financial reports are:

  • profit and loss statement (P&L)
  • cash flow statement
  • balance sheet.

Our financial statements template has examples to help you do each of these reports.

What is a profit and loss statement (P&L)?

The P&L or income statement is a summary of your business's income and expenses over a period of time. It's prepared at regular intervals – usually monthly and at the end of the financial year.

Your P&L allows you to:

  • analyse all income and expense categories
  • spot areas that need more analysis
  • take action before small problems become big problems.

For example, you might notice an increase in business expenses that forces you to re-price your goods to keep making a profit.

Use our financial statement template to create a P&L. Add as many categories into the spreadsheet as you need, particularly in the sales revenue and expenses area. Try to do a monthly report so you can better understand your income and costs and stay ahead of potential losses.

How to calculate profit and loss

You can also attend one of our financial management workshops to learn how to read financial statements, and calculate profit and loss or the cost of goods.

What is a cash flow statement?

A cash flow statement is a summary of money coming into and going out of the business for a set time period. It's prepared monthly and at the end of the financial year.

Use the financial statement template to prepare a cash flow statement.

What is net operating cash flow?

Net operating cash flow is the amount of cash that a business has after paying its bills. Overdue bills don't affect the cash flow statement until they're paid in cash.

A cash flow forecast will help you measure and monitor how the business is operating.

What affects your cash flow?

Cash inflow and outflow can come from many different activities, including:

  • operating
  • investing
  • financing.

Cash flow from operating activities

Operating activities are the day-to-day results of buying and selling goods and services. They usually include:

  • receipts from income
  • payment for expenses and employees
  • funding of debtors
  • funding to and from suppliers
  • stock movements.

Cash flow from investing activities

Investing activities include investments in future business activities – for example, buying and selling fixed assets. This type of cash flow can include items such as:

  • payment for purchase of plant, equipment and property
  • proceeds from selling the above
  • payment for a new investment
  • proceeds from selling an investment.

Cash flow from financing activities

Financing activities are how a business finances itself. They include:

  • extra money the owners inject into the business
  • money the business borrows
  • money others borrowed from the business that they pay back
  • money the owners take out of the business.

How to tell if you have bad cash flow

The cash flow statement can provide helpful warning signals to avoid future financial troubles. Some potential warning signs are when:

  • cash receipts are less than cash payments – you're running out of money
  • net operating cash flow is an outflow – your cash flow is negative
  • net operating cash flow is less than profit after tax – you're spending more than you earn.

What is a balance sheet?

The balance sheet is a general snapshot of the financial health of a business on a given day. You would normally complete a balance sheet at the end of a month or financial year.

Once you have a profit and loss statement and cash flow statement, you can complete a balance sheet. A balance sheet includes:

  • assets such as cash, stock, land, buildings, equipment, money others owe the business
  • liabilities such as money owed to suppliers or the tax department, loans, credit card debt
  • net worth, which is the value of the business after deducting what the business owes (also known as the balance sheet equation or equity).

Help creating a balance sheet

Use the financial statement template to prepare a balance sheet.

Accounting package software also usually provide balance sheet reports. Or you can ask an accountant to prepare one for you.

Managing your business finances