Know Your Numbers: Part 1 of 4
Know Your Numbers: Part 1 of 4
Your Financial Statements Are Telling You a Story — Are You Listening?
By Michelle McNeil-Brown, MBA | MMB MBA, LLC
Last month, in the Money Matters series, we spent four weeks on financial literacy — what it is, where to build it, and the tools that can help you get there. This month, I want to take that idea and put it to work on the single most practical skill a business owner can develop: the ability to read your own financial statements.
Here is a scene I have witnessed more times than I can count. A business owner sits down across from me, opens a folder, and slides three reports across the table — a Profit and Loss, a Balance Sheet, and sometimes a Statement of Cash Flows. Then they say some version of the same sentence: "I know these are important, but I honestly don't really know what I'm looking at."
There is no shame in that sentence. Most business owners did not start their company because they loved accounting. They started it because they were good at a trade, a craft, a service, or an idea. The financial statements came later — a necessary part of the business, but rarely the fun part. And so they get produced, filed, and largely ignored until tax season, when they are handed off to someone else entirely.
Welcome to Know Your Numbers, a new four-part series on The Bookkeeper's Blog. Over the next four weeks, we are going to change that relationship with your financial statements — turning them from a source of vague anxiety into a source of genuine information. Because that is what they are: your financial statements are not paperwork. They are a story about your business, told in numbers. And once you learn to read that story, you can never again be surprised by it.
The Big Three
Every small business, regardless of size or industry, relies on three core financial statements. Each one answers a different question, and you need all three to see the full picture:
The Profit and Loss Statement (P&L) — also called the Income Statement. It answers the question: Is my business making money over a period of time? This is the report most owners look at first, and often the only one they look at.
The Balance Sheet — it answers a different question: What does my business own, and what does it owe, at a single moment in time? This is the report most owners understand least, and it is often the most revealing.
The Statement of Cash Flows — it answers the question that keeps business owners awake at night: Where did my money actually go? It explains the gap between being profitable on paper and having money in the bank.
We will devote a full post to each of these in the coming weeks. For today, I want to focus on something more fundamental: why these reports get avoided, and why that avoidance quietly costs business owners more than almost anything else.
Why Owners Avoid Their Own Numbers
In my experience, business owners do not ignore their financial statements out of laziness or indifference. They ignore them for three very human reasons.
The first is intimidation. Financial statements are dense with terminology — gross margin, accrual, retained earnings, current liabilities — and if no one has ever walked you through what those words mean, the reports can feel like they are written in a foreign language. It is easier to set them aside than to feel foolish trying to decode them.
The second is fear of what they might reveal. There is a certain comfort in not looking. As long as you do not run the report, you can tell yourself the business is doing fine. But this is a false comfort, and an expensive one. Problems that could have been caught early — a client who has quietly stopped paying, expenses that have crept upward, a product line that is losing money — grow larger in the dark.
The third is simple busyness. When you are running a business, the urgent constantly crowds out the important. Reading your financials feels like something you can always do later. And later never comes, until a crisis forces the issue.
I understand all three of these reasons. But I want to gently push back on the premise underneath them — the idea that understanding your financial statements requires a special aptitude you were not born with. It does not. It requires exposure, a little patient explanation, and the willingness to sit with your numbers for twenty minutes rather than avoiding them. That is a skill anyone can build, and it is exactly the skill this series is designed to build.
What Good Bookkeeping Makes Possible
Here is something important, and it is where my work as a bookkeeper connects directly to your financial literacy: you cannot read a story that was never written clearly in the first place.
If your books are disorganized — transactions miscategorized, personal and business expenses mingled, accounts that have not been reconciled in months — then your financial statements will tell you a story that simply is not true. Garbage in, garbage out, as the old saying goes. I have seen owners make genuinely poor decisions not because they could not read a report, but because the report itself was built on unreliable data.
This is why clean, accurate, consistent bookkeeping is not a bureaucratic chore. It is the foundation of every insight you will ever draw from your numbers. When your books are right, your Profit and Loss actually reflects whether you made money. Your Balance Sheet actually reflects what you own and owe. Your reports become trustworthy — and a trustworthy report is a tool you can make real decisions with.
Throughout this series, I will assume your books are in reasonable order. If you are not confident that they are, that is not a reason to feel discouraged — it is simply the first thing to address, and it is precisely the kind of work my firm does every day.
What's Coming in This Series
Over the next three weeks, we will take each of the big three statements in turn. Next week, we start with the Profit and Loss Statement — the report you probably already look at — and I will show you how to read it more deeply than "did I make money or not." The following week, we will tackle the Balance Sheet, the most misunderstood of the three and often the most illuminating. And we will close with the Statement of Cash Flows, unpacking the single most confusing fact in small business finance: why a profitable business can still run out of cash.
By the end of this series, my hope is that the next time someone slides three financial statements across a table to you, you will not feel that flicker of uncertainty. You will pick them up, read the story they are telling, and know exactly what to do next.
Let's get started.
Have Questions? MMB MBA Can Help.
At MMB MBA, LLC, we believe that an informed client is an empowered client. In addition to our full-service bookkeeping and accounting support, we offer private tutoring in accounting and financial concepts, as well as QuickBooks and Xero consulting and training tailored to your specific needs and experience level. If you would like to understand your own financial statements with confidence — or make sure the books behind them are accurate and reliable — we are here to help.
Contact us today at mmb@mmbmba.com or call 207.468.6833 to schedule a consultation.
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