We are often surprised to see how little attention some small business owners pay to the “financial report card” for their business, given how simple it is to get these key reports generated right out of Peachtree with only a little bit of “tweaking.” With the addition of the iLumen financial benchmarking tool built right into Peachtree 2010, there are even more handy tools available to measure business performance, with no additional work required beyond the usual data entry tasks.

Good financial reporting always needs to start with a good chart of accounts. If you haven’t visited this critical area of your Peachtree setup in some time, it’s time for you to take a closer look. Are the categories you are tracking the ones that make sense to you? Don’t just leave this to your accountant–you are the one that needs to ultimately make sense of these business indicators!

A recent Wall Street Journal article (Colleen Debaise, November 1, 2009) highlighted the three basic financial statements every business should review, and provided a good summary of their purpose. And of course all of these reports are readily available in Peachtree.

The Balance sheet, or statement of financial condition, is a snapshot, as of a specific date, of the financial condition of a business. It is a summary of the business’s financial situation. The balance sheet tells a business what it owns and what it owes. The Balance Sheet is divided into three distinct sections:

•  Assets are the resources that a business controls such as cash, equipment, buildings, furniture and money owed to the business such as accounts receivable.
• Liabilities are the debts or obligations of the business owed to others such as accounts payable, notes and loans payable, taxes, and payroll.
• Net worth, also called equity, is what’s left over, or assets less liabilities.

The Profit and loss statement (P&L) , or income statement, is an historical record that shows how much a business has made in revenues, how much it has spent on expenses, and the resulting amount of net income over a specific period of time (such as a week, a month, a quarter or a year). This statement tells a business how much it is making or losing, and if structured properly, which specific products or services, or groups of same,  are selling the best and where the business is spending too much on expenses.

The Cash flow statement shows how cash “flowed” in and out of the business over a specific period of time, and usually uses the same time frame as the corresponding profit and loss statement. A P&L may show a profit, yet the business may not be generating enough cash. Sales may be growing to new customers, but those new customers may be slow to pay, causing a cash shortage. Also, the business may be spending more on inventory in anticipation of growth, once again causing a cash shortage. Profitable businesses can quickly become “cash poor” and lose control of the business, as a result of too-rapid growth without the corresponding financial controls in place.

  All three financial statements together should be considered when evaluating the financial condition of a business.

And Peachtree makes it real simple to generate all three — as long as you start with a decent Chart of Accounts. If you haven’t reviewed yours in some time, maybe it’s time to take a fresh look.