Your accountant prepares them, your bank requires them, and your decisions should be based on them — yet most Montreal small business owners admit they don't fully understand their financial statements.
The Three Financial Statements
Income Statement (P&L): Revenue - COGS = Gross Profit; Gross Profit - Operating Expenses = Net Income. Shows profitability over a period.
Balance Sheet: Assets = Liabilities + Owner's Equity. A snapshot of financial position at a specific date.
Cash Flow Statement: Where cash came from and went. The most important for day-to-day survival — a profitable business can still go bankrupt from poor cash flow management.
Key Ratios to Monitor Monthly
- Gross margin %: Gross Profit ÷ Revenue — know your industry benchmark
- Current ratio: Current Assets ÷ Current Liabilities — above 1.5 is generally healthy
- AR days: (Accounts Receivable ÷ Revenue) × 365 — lower = faster collection = better cash flow
- Debt-to-equity: Total Liabilities ÷ Total Equity — reviewed by banks for credit decisions
What Your Accountant Wants You to Notice
Month-over-month changes in gross margin, unusual expense spikes, and slow-paying customers in accounts receivable aging are the early warning signs that financial statements reveal. Monthly review meetings with your accountant turn these insights into timely business decisions.