3 Financial Statements Every Electrical Contractor Should Know

While we love poring over numbers, we understand not everyone does. Most electrical contractors would probably rather be talking to customers and quoting jobs, right? 

Even so, it’s wise to gain a working knowledge of your company’s financial requirements, even if you don’t handle them yourself. Understanding your finances allows you to maintain more control over your livelihood and guides you toward informed decisions. 

You don’t have to bury yourself in numbers every day to stay in the loop. There are 3 financial statements vital to running a contractor’s business. Get to know what they are, how to read them, and what they do. 

Let’s examine each one. 

Balance sheet

A balance sheet paints the company’s financial picture at a specific point in time. 

What is a balance sheet?

A balance sheet is a financial statement that lists an electrical contractor’s assets, liabilities, and equity.

• Assets: A contractor’s assets may include cash, receivables, equipment, and property
• Liabilities: Obligations like loans and payables are liabilities

As the name suggests, a balance sheet needs to balance. Assets minus liabilities equals equity. 

How do you read a balance sheet?

Assets are at the top, liabilities are in the middle, and equity is at the bottom. It’s easy to see how much short and long-term debt the company has and the assets the business has accumulated. 

What does a balance sheet do?

A balance sheet gives you, your employees, and outside parties a snapshot of your company’s financial position and health. 

Related: How Can a CPA Help Your Small Business?

Income statement

The second crucial financial statement for electrical contractors is their income statement. This is also called the profit and loss statement.

What is an income statement?

Your income statement is particularly important for contractors because it gauges your profitability.

An income statement starts with your revenue and subtracts your expenses to determine if you were profitable during a given point in time. 

Your income statement may be based on a month, quarter, or year.

How do you read an income statement?

Your income is broken down into line items. You’ll see items like Gross Revenue, cost of goods sold, and gross profit at the top.  Line items included in general overhead expenses such as Advertising, Insurance, Professional fees, and Taxes will be listed further down. At the bottom, you’ll see your net income. 

What does an income statement do?

Your company’s income statement tells you whether your company was profitable by showing you how much you earned and how much you spent during a specific timeframe. The information in your income statement helps you make sound financial decisions that set you up for success. 

Related: 25 Tax Deductions for Tradesmen and Contractors That Can Save You Money All Year Long

Cash flow statement

The final financial statement we’ll review is a cash flow statement, which is integral in helping electrical contractors manage their business in the short and long term. 

What is a cash flow statement?

Using information from the income statement and the balance sheet statement, the cash flow statement calculates either a positive or negative cash flow from your business within a set time period.

How do you read a cash flow statement?

The 3 main sections of a cash flow statement are cash from:

• Operating activities
• Cash from investing activities
• Cash from financing activities 

Contractors should review each section closely to gain a clear picture of where the business invests its money. 

At the bottom of the cash flow statement, the final number shows whether the business operated at a positive or negative cash flow during the designated time.

A cash flow statement will show you the total amount of money being transferred into and out of a business, especially related to and affecting liquidity.

What does a cash flow statement do?

A cash flow statement measures your business’s liquidity. In addition, looking at past statements gives you insight into future ebbs and flows in business. You can use a cash flow statement to help you know if you have enough cash to cover your upcoming expenses. 

 Make informed decisions with these 3 financial statements

Being able to interpret these 3 financial statements is vital to staying on top of your business’s health and viability. They also provide knowledge that assists you in making the best financial decisions at a given point in time. 

Even if numbers aren’t your thing, learning how to read these statements and knowing what they mean are savvy moves that will positively impact your electrical contractor business.

Let Chaliff + Associates Crunch The Numbers

We work with many electrical contractors and understand that you need to focus on making your customers happy. We have a team of CPAs ready to take the stress of tax prep, payroll, accounting, and bookkeeping off your shoulders, giving you more time to grow your business. 

Take the first step to freeing up your time and gaining peace of mind by scheduling a consultation with us today.