If you’re running a business and you have your sights set on growth, hiring, or expansion, you’re already making strategic decisions. But here’s the thing: in order to scale smart, you need to understand the full story of what your small business financial reports are telling you. Your company’s financial health depends on it.
This guide is designed for leaders like you—business owners who don’t need an accounting degree, but who do want financial clarity and understanding. We’ll walk you through financial statement examples, so you can understand what these key documents are really telling you, including how to read them and what to look for. You’ll also learn why financial statements are important for financial planning and decision-making.
Let’s demystify the numbers and turn your financials into a powerhouse business tool, together.
Why financial statements matter during business growth
Financial statements (like your income statement, balance sheet, and cash flow statement) are like X-Ray machines, which reveal what’s really going on inside your business, financially speaking.
Built on Generally Accepted Accounting Principles (GAAP) and sometimes aligned with international financial reporting standards, they give your company’s finances the structure and consistency needed to plan and grow.
While they’re critical cornerstones of day-to-day operations and decision-making, they’re even more essential during times of growth. They offer a clear view into your company’s liquidity, your business’s financial performance, and your overall financial position.
Why? As your business scales, things get more complicated—and fast.
You’ll likely find yourself suddenly juggling more small business expenses, staff, accountants, and high-stakes decisions. Suddenly, that mental math or gut check that used to (maybe) work doesn’t cut it anymore.
That’s where financial reports for small businesses come into the picture. These reports give you clarity on your most pressing questions regarding profitability, cash flow, and future readiness.
Are you profitable—or just busy? Do you have the cash flow necessary to support those new hires you’re eyeing? Are your margins holding up as you grow, or are things becoming shaky?
Ultimately, these statements help you spot financial trends, compare past performance, avoid surprises, and plan for the future with laser-focused precision. Track results across multiple periods, and you’ll begin to understand your complete picture.
Studies show that small businesses today are struggling with financial challenges, including inflation, taxes, and competition. Financial statements give you the valuable insights and leverage you need to overcome financial hurdles, improve resilience, and take your business to new heights.
A real-world example: Service-based business with 10 employees
Let’s bring the numbers to life with a realistic financial statement example, using a fictional small business. Meet Coastal HVAC Services, a growing business that has 10 employees, two trucks, and they’re booked out two weeks in advance. Business is great, but as they eye a third truck and additional hires, the owner wants to ensure they’re financially ready for the next step.
Here’s a snapshot of their monthly accounting overview:
- Monthly revenue: $100,000
- Cost of goods sold (COGS): $35,000
- Operating expenses: $50,000
- Net income: $15,000
Whether you’re reviewing a business report or using a personal financial statement template for your own goals, this gives the owner a complete picture of income, expenses, and what they can confidently spend.
As we continue through this article, we’ll walk through how these numbers show up—and what they reveal—across each financial statement example.
Income statement (P&L) breakdown
The income statement—also called the profit and loss statement (P&L)—shows how much money your business made (or lost) over a specific period of time. It’s one of the clearest ways to assess your company’s financial performance.
In our financial statement example with Coastal HVAC Services, it serves as the go-to report for understanding profitability and monitoring margins.
Here’s a simplified version of Coastal HVAC’s monthly income statement:
- Revenue (sales): $100,000—from completed jobs.
- COGS → Gross profit: $35,000 → $65,000—includes HVAC parts, subcontractor labor, tools.
- Operating expenses: $50,000—salaries, rent, truck fuel, advertising, admin software.
- Net income: $15,000—your actual profit after everything’s been paid.
You can also calculate operating income by subtracting operating expenses from gross profit. And remember, income statements don’t reflect unrealized gains or delays in accounts receivable. Pay close attention to the line items here, especially as you scale.
Balance sheet highlights
The balance sheet in accounting is a snapshot of your business’s financial position at a specific point in time. It shows what the company owns (assets), what it owes (liabilities), and what’s left over (equity). Simply put, it shows your company’s financial position.
Here’s what a simple balance sheet might look like for Coastal HVAC:
- Assets (equipment & vehicles): $150,000
- Long-term liabilities (truck loan + line of credit): $50,000
- Equity (retained earnings): $100,000
What does this balance sheet show us? Most of HVAC’s assets are tied up in items such as raw materials, trucks, and HVAC equipment. These assets can’t always be quickly converted into cash, so it’s essential to check your cash-on-hand against upcoming obligations.
Examine closely the relationship between long-term debt and asset value, as well as accounts payable growth. If debt approaches the value of the company’s assets, lenders (and you) may hesitate. Retained earnings and stockholders’ equity help determine your business’s net worth.
Cash flow statement: What’s really coming in and out
Cash flow is often a challenge for small businesses—even profitable ones—with nearly a quarter saying they’re not comfortable with their cash flow. That’s why cash flow statements are so valuable: the cash flow statement shows the actual movement of money in and out of your business, which is vital for both day-to-day operations and future planning.
Here’s what Coastal HVAC Services’ cash flow looks like:
- Operating activities: $20K in, $18K out → $2K net increase
- Financing activities: $1,000 truck loan payment
These figures reflect cash inflows from customers and cash spent on payroll, rent, and loan repayment. This cash flow is tight but positive.
One common mistake is assuming a profitable income statement equals cash in the bank. If accounts receivable or unearned revenue are high, you may look healthy on paper but feel squeezed in reality.
How to use these numbers to make smarter decisions
Financial statements aren’t just dense documents for your bookkeeper or tax preparer—they’re powerful tools for running and growing your business.
Here’s how to use them strategically:
- Spot underperforming services: Use COGS and margin data to assess team and service performance.
- Time your debt repayment or equipment purchase: If cash is tight, delay large purchases. Reviewing capital expenditures (capex) versus operational expenditures (opex)—such as equipment versus rent—can help you prioritize spending more effectively.
- Plan for taxes: Steady net income means you’ll owe taxes—plan ahead.
- Apply for financing: Lenders require proof of stability, and your financial records help make the case.
- Raise capital: If you’re issuing stock or tracking the value of the company’s stock, accurate financials are critical.
Even if you’re not in the stock market, these financial benchmarks still matter.
When to get help from a CPA or bookkeeper
At some point, DIY isn’t enough. Bring in a pro when:
- You’re hiring or scaling locations
- You’re financing large purchases
- You need investor reporting
- You’re blending personal assets and business capital
They’ll help with everything from reporting period accuracy to separating business vs. personal decisions.
Turning financial statements into business confidence
These financial statement examples are meant to show you how critical these reports are to your business’s success. They’re more than just paperwork: they’re roadmaps that show you where your business stands today, and where it’s heading next.
Want a head start? Ask about our free financial statement templates or have us design a financial statement template tailored to your needs.
Here at Archer Lewis, our team of accounting experts provides bespoke support reviewing or setting up reporting systems aligned with your growth goals.
Start a conversation with our team today—we’ll help you turn your financial statements into strategic insights.
