Good financial statements are at the heart of any successful ecommerce business. This post is the first in a series of four that deep-dives into what they are, what they tell you, and how to read them. You can also watch our YouTube video on this topic for more depth.
Accounting is the language of business
Becoming an expert in financial statements is rarely the goal for an aspiring ecommerce owner. The goals are making money, changing your life, maybe changing the world with a great product. Fair enough. But there's another side of business that terrifies a lot of owners: accounting. If you don't pay attention to it, you may end up wondering where all the money went.
Accounting is the language of business. Speak it, and you're far more likely to succeed. Outsourcing your accounting doesn't get you off the hook here either. You still need to be able to read your own statements, because every question you need answered eventually comes back to them:
- The holidays are coming. Do I need a loan for more inventory?
- Can I afford to hire a warehouse manager? A salesperson? An accountant?
- How much should I spend on marketing, and am I getting a good return?
- Can I afford to open a new warehouse?
Why don't people utilize their financial statements?
- A lack of time
- A lack of know-how
- A lack of understanding
Owners have a lot on their plates, and digging into accounting isn't always a priority. Sometimes it's simply not knowing how to use tools like QuickBooks. Either way, everything eventually comes back to what the statements say, so now's a good time to learn them.
Why are financial statements so important?
Financial statements tell the story of your business. They show the past (where you've been), the present (where you're at), and the future (the trend of where you're going).
Without them, you're flying blind, without a high degree of confidence.
What are the basic financial statements?
- Profit & Loss Statement: income and expenses
- Balance Sheet: assets, liabilities, equity
- Cash Flow Statement: where it all comes together
The P&L shows what you've made, spent, and have left, and is especially valuable for seeing why you're succeeding or failing. The Balance Sheet shows where you stand as a business and how likely you are to run out of cash. The Cash Flow Statement pulls from both of the others. It can be the most useful of the three, and also the most under-utilized because it's the hardest to read.
Quick Plug for QuickBooks Online: we recommend QBO because it's stable, well-supported, integrates with other apps, and turns your everyday accounting into ready-made financial statements automatically.
How to find your financial statements in QuickBooks Online
From your Dashboard, click Reports → Reports on the left side. All reports are generated automatically from your everyday accounting activity. Star the ones you use regularly to pin them to your favorites at the top.
Going in depth with your ecommerce financial statements
In the rest of the series, we go into detail on each report: its structure, how to interpret it, what questions it answers, and how to read the trends in your business. Our goal is for you to become genuinely comfortable with your numbers.
- The Ecommerce Income Statement: What It Should (and Shouldn't) Show You
- The Ecommerce Balance Sheet: 2 Accounts Most Businesses Get Wrong
- Understanding Your Ecommerce Cash Flow Statement (Why Profit Isn't the Same as Cash)
If you'd like a gut-check on whether your statements are set up right, download our 5 Ecommerce Bookkeeping Warning Signs checklist.
Frequently asked questions
What are the three core financial statements every ecommerce business needs?
The Profit & Loss Statement (income and expenses), the Balance Sheet (assets, liabilities, and equity), and the Cash Flow Statement (which pulls from both of the others to show how cash is actually moving).
If I outsource my accounting, do I still need to understand my financial statements?
Yes. Outsourcing gets the bookkeeping off your plate, but every real business decision, hiring, inventory, marketing spend, still comes back to what your statements say. You need to be able to read them even if someone else is building them.
Where do I find my financial statements in QuickBooks Online?
From your Dashboard, click Reports → Reports on the left menu. Star any report you use regularly to pin it to your favorites.
Why do so many business owners avoid looking at their financial statements?
Usually a lack of time, know-how, or understanding, not because the numbers don't matter. It's worth pushing past that, since these three reports are what actually tell you if your business is healthy.
Which of the three statements should I read first?
Start with the P&L, it's the most intuitive and shows whether you're profitable. From there, the Balance Sheet and Cash Flow Statement round out the full picture of your financial health.
Get your financial statements working for you
Financial statements aren't just paperwork for your accountant. They're the clearest tool you have for understanding your business and making good decisions. If you'd rather have experts build and interpret yours for you, our ecommerce accounting team can help.
