Financial Guide for SMEs - SME Corporation Malaysia

Financial Guide for SMEsUnderstanding Financial StatementsPlease note that this chapter is not designedto assist you with the preparation of fi nancialstatements but to familiarise you with whatthey look like and how they can be used tobenefi t your business.Every business requires some assets to beable to run the operations and ultimately makea profi t. This could be as simple as having cashin the bank, but is more likely to be a numberof assets, such as inventory (only unsoldinventory is an asset), offi ce equipment andperhaps even commercial premises. Sinceall of these items need to be paid for whenstarting up a business, the owners will needto invest their own money or borrow from alender (e.g. bank) or investor.Financial statementsprovide information onhow the business isoperating financiallyand why. Ensuring thatthese statements areproduced regularlywill provide financialinformation forcontinuousimprovement ofbusiness operationsThere are three fi nancial statements that record fi nancial information of abusiness, which are:• Income Statement;• Balance Sheet; and• Statement of Cash Flows.The fi nancial statements record the performance of your business and allowyou and others to diagnose the strengths and weaknesses of your businessby providing a written summary of the fi nancial activities for a given period. Toproactively manage your business, you should plan to generate these fi nancialstatements on a monthly basis, review the results and analyse for improvement.Let’s look at the financial statements and see how they can assist inmonitoring your businesses fi nancial performance.11chapter 1 01-21 Eng.indd 118/15/11 5:01:23 PM