Every business must produce three key financial statements: the balance sheet, income statement, and cash flow statement. These documents serve different purposes but collectively offer a comprehensive view of a company’s performance and financial stability.

The balance sheet provides a snapshot of a company’s financial position at a specific point in time, detailing its assets, liabilities, and owner’s equity. It answers the fundamental question: What does the business own, and what does it owe? This helps investors and creditors assess the organization’s solvency and capital structure..

As Warren Buffett once said, "The income statement shows how much youve earned, the balance sheet shows what you own, and the cash flow statement shows how you manage your money." This trio of reports provides insight into profitability, liquidity, and financial stability. In 2024, the average gross profit margin for small businesses in the U.S. was reported at "31%", emphasizing the importance of tracking revenue against cost of goods sold (COGS)

The income statement, also known as the profit and loss statement, shows the company’s financial performance over a period—usually monthly, quarterly, or annually. It highlights revenues, expenses, and net income, giving insights into the company’s profitability. For many stakeholders, this statement answers whether the company is making or losing money during the given period.

The cash flow statement tracks the flow of cash into and out of the business, divided into operating, investing, and financing activities. Unlike the income statement, which may include non-cash items (like depreciation), the cash flow statement shows the actual liquidity of the company. As the saying goes, “Profit is theory, cash is fact.”