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.
A balance sheet paints the company’s financial picture at a specific point in time.
A balance sheet is a financial statement that lists an electrical contractor’s assets, liabilities, and equity.
As the name suggests, a balance sheet needs to balance. Assets minus liabilities equals equity.
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.
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?
The second crucial financial statement for electrical contractors is their income statement. This is also called the profit and loss statement.
Your income statement is particularly important for contractors because it gauges your profitability.
Your income statement may be based on a month, quarter, or year.
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.
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
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.
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.
The 3 main sections of a cash flow statement are cash from:
Contractors should review each section closely to gain a clear picture of where the business invests its money.
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.
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.
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.
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.