Written by Evelyn Mytka, Contributing Writer
Financial statements are tools to help you understand how your business is doing. Whether you’re applying for a loan, filing taxes, or just trying to make smarter business decisions, these documents provide a clear picture of your finances.
In this blog, we’ll walk you through the three key financial statements — the Income Statement, Balance Sheet and Cash Flow Statement – what they are, how to use them, and how they work together. We’ll use simple examples and provide downloadable templates from Business Link to help you get started.
1. Income Statement (a.k.a. Profit & Loss Statement)
The income statement shows your revenue, expenses, and profits over a period of time, usually monthly, quarterly, or annually. Think of it as a report card that shows how much money your business made (or lost) over a certain time.
What it tells you:
- Are you making a profit?
- Where are your biggest expenses?
- How has your performance changed over time?
Example:
Let’s say you run a business called Sweet Tooth Bakery. Here’s what part of your income statement might look like for one month:
| Sweet Tooth Bakery – Income Statement (May) | |
| Sales | $10,000 |
| Cost of Goods Sold (COGS) | $4,000 |
| Gross Profit | $6,000 |
| Operating Expenses | $3,000 |
| Operating Profit | $3,000 |
| Add: Other Income | $1,000 |
| Profit Before Taxes | $4,000 |
| Less: Tax Expense | $1,000 |
| Net Profit | $3,000 |
Download our Income Statement Template
2. Balance Sheet
While the income statement is about a period of time, the balance sheet is a snapshot of your business’s finances at a single point. It shows what your business owns (assets), owes (liabilities), and what’s left over for you (equity).
The equation to remember:
Assets = Liabilities + Equity
Example:
Here’s a simplified balance sheet for a fictional plumbing business called PipeDream Services as of June 30.
| PipeDream Services – Balance Sheet (June 30) | |
| Current Assets | |
| Cash | $5,000 |
| Inventory | $5,000 |
| Accounts Receivable | $3,000 |
| Fixed Assets | |
| Property, Plant & Equipment | $15,000 |
| Less: Accumulated Depreciation | $5,000 |
| Total Assets | $23,000 |
| Current Liabilities | |
| Accounts Payable | $6,000 |
| Credit Card Debt | $2,000 |
| Taxes Payable | $2,000 |
| Long Term Liabilities | |
| Bank Loan | $10,000 |
| Total Liabilities | $20,000 |
| Equity | $3,000 |
| Total Liabilities + Equity | $23,000 |
Download our Balance Sheet Template
3. Cash Flow Statement
Cash is the lifeblood of your business. You can be profitable on paper and still run out of cash if you’re not careful. That’s why the cash flow statement is so important, it shows how money moves in and out of your business over time.
Why it matters:
- Tracks liquidity (how much cash you actually have)
- Helps you spot future cash shortages
- Shows lenders that your business is financially healthy
There are two types:
- Indirect method (starts with net income, adjusts for non-cash items)
- Direct method (shows actual cash in and cash out)
Example:
Here’s a direct method cash flow example for Green Thumb Landscaping for the month of April.
| Green Thumb Landscaping – Cash Flow (April) | |
| Cash Inflows | |
| Total Sales | $12,000 |
| Loan Received | $5,000 |
| Total Inflows | $17,000 |
| Cash Outflows | |
| Equipment Purchase | $4,000 |
| Payroll | $6,000 |
| Rent & Utilities | $2,000 |
| Supplies | $1,000 |
| Total Outflows | $13,000 |
| Net Cash Flow | $4,000 |
| Starting Cash | $3,000 |
| Ending Cash | $7,000 |
If you’re looking for hands-on support to manage your cash more effectively, check out Business Link’s Cash Flow Canvas Bootcamp. It’s a free, online 3 hour training session that helps Alberta small business owners build a realistic cash flow forecast with helpful guidance.
How These Statements Work Together
Here’s a quick recap:
- Income Statement shows whether your business is profitable.
- Balance Sheet shows what your business owns and owes.
- Cash Flow Statement shows how money moves in and out of your business.
You can’t rely on just one of these to get the full picture. For example, your income statement may show a profit, but if your customers are slow to pay, your cash flow statement could show you’re running out of money. That’s why using all three together is so important.
We Can Help You!
If these statements still feel overwhelming, don’t worry—you’re not alone. Understanding your financials is one of the most valuable steps you can take to grow and sustain your business. Book a free consultation with one of our Business Link Strategists to get support tailored to your business needs.
For more information, check out our Cashflow Canvas Bootcamp partner, Nail the Numbers
