To most small business owners, your Profit & Loss Statement (also called P&L or Income Statement) is your holy grail. Your Balance Sheet… is another story. You may not even care if it's wrong.
What if we told you that if your Balance Sheet has errors, so does your P&L? If you care about your P&L, you’d better care about your Balance Sheet, too. Let’s talk about how they're deeply connected.
At CSI Accounting & Payroll, we’ve worked with small business accounting for nearly 60 years. That means we’ve gotten a lot of questions about these financial statements, including:
The numbers on your Balance Sheet and your P&L are closely connected in a few ways:
During onboarding, we often meet new clients who know their Balance Sheets are wrong – but they don’t care because they don’t use them. They often come from annual tax accountants who didn’t review or reconcile their Balance Sheets. Why? Some entities don’t need to submit a Balance Sheet with their tax returns, so many accountants think of it as skipping an unnecessary step instead of skipping a very necessary step.
We’ve hired three accountants who remarked “It’s refreshing that CSI actually does accounting the right way.” – referring to us creating accurate Balance Sheets. That’s how rare it is!
If your Balance Sheet isn’t reviewed or reconciled, resulting in missed mistakes, then:
Your Profit and Loss (P&L) Statement, often referred to as an Income Statement, is useful to gauge the overall performance of your business. If it’s wrong, there are some pretty major consequences, including:
Luckily, if your Balance Sheet is right, then your P&L has to be right! If your accountant ensures you have accurate Balance Sheets, you won’t face the challenges of incorrect P&Ls listed above.
Worried about your Balance Sheet? Review it! As the owner, you will know if many of the numbers shown are reasonable or not. If you or your accountant see any glaring red flags, there are two ways to fix them:
What’s better than accurate financial statements? Getting them monthly and working with an accountant who is happy to help you analyze them! That’s what we have at CSI.
Now that you know how Balance Sheets and P&Ls are connected, how incorrect ones hurt your business, and how to fix them, are you ready to check out monthly accounting services? If so, please consider CSI Accounting & Payroll! To see if we can be a good fit for your business, click the button below for a free consultation:
Not ready to talk? That’s okay! First, learn more about what it’s like to work with us by clicking the image below: