Statistics show that over 75% of new businesses last less than three years. Some are bought out or close for other reasons, but many fail because of poor planning and financial management. That includes not managing cashflows, or keeping a close enough eye on costs and profit margins.

Three key financial tools to help you succeed

There are three main financial statements used to look after the health of your business. Each shows a different aspect of your business but they all need to be looked at together.

They are

• a balance sheet - this shows what your business is worth on a set date.
• a profit and loss statement - this shows how much money your business is making or losing, or in the case of a forecast, what you expect to make or lose.
• a cashflow forecast - this identifies when the money is coming in and out of your business accounts.

If you want to be in control of your business then you’ll need to understand how each one works. These tools show you how the business is performing and what changes may be needed to help it grow.

Key ratios and trends

A ratio is a way to compare two financial aspects of your business and see the relationship between them. For instance you might want to know the ratio between your assets and liabilities, or check sales in relation to costs or revenue.

To get a ratio, you simply divide one figure into the other.

You can also use ratios to compare your business against others in the industry. And tracking key ratios can help you identify trends within your business or industry, plus help you with business planning and decisions.
Ratios are different for each type of business.

Your accountant can help you decide with ratios are important to your business, and your industry association may be able to help with key ratios and statistics for industry.