The Four Basic Financial Statements
THE BALANCE SHEET IS ONE OF FOUR BASIC FINANCIAL STATEMENTS for any business . Understanding these reports is essential for spa business leaders to make informed decisions . These statements provide critical insights into the financial health of an operation , guiding strategic planning and day-to-day management .
1 . INCOME STATEMENT : The income statement , also known as the profit and loss ( P & L ) statement , shows a company ’ s revenues and expenses over a specific period , typically a quarter or year . It includes details on sales , cost of goods sold ( COGS ), gross profit , operating expenses and net income . This statement is useful for assessing the profitability of the business . Spa owners and managers should review the income statement to understand their financial performance , identify trends in revenue and expenses , and make informed decisions about pricing , cost control and investment in new services .
2 . BALANCE SHEET : The balance sheet provides a snapshot of a company ’ s financial position at a specific point in time . It lists assets , liabilities and equity . Assets include everything the company owns , such as cash , inventory and property . Liabilities are what the company owes , including loans and accounts payable . Equity represents the owner ’ s stake in the company . The balance sheet is useful for evaluating the company ’ s liquidity , solvency and overall financial stability . Spa stakeholders should review the balance sheet to understand their financial strength , manage debt levels and ensure they have enough assets to cover liabilities .
3 . CASH FLOW STATEMENT : The cash flow statement tracks the flow of cash in and out of the business over a specific period . It is divided into three sections : operating activities , investing activities and financing activities . This statement is critical for understanding how well the company generates cash to fund operations , pay debts and invest in growth . Spa owners and financial managers should review the cash flow statement to manage liquidity , ensure they can meet their financial obligations and plan for future cash needs . 4 . STATEMENT OF RETAINED EARNINGS : The statement of retained earnings shows changes in retained earnings over a period . It starts with the beginning balance of retained earnings , adds net income and subtracts dividends paid to shareholders . This statement is useful for understanding how much profit is being reinvested in the business versus distributed to owners . Spa owners and investors should review the statement of retained earnings to assess the company ’ s growth potential and dividend policy .
Regularly reviewing these financial statements helps spa business leaders make data-driven decisions , improve financial performance and ensure long-term sustainability . n
The Financial Reporting Guide for Spas
INSPIRED TO LEARN MORE about business reports ? Uniform System of Financial Reporting for Spas covers financial statements , analysis and tools , specifically written for the spa professional . This definitive guide for accounting principles was created by the ISPA Foundation in a collaborative effort with author Raymond Schmidgall , Ph . D ., the American Hotel & Lodging Educational Institute and Hospitality Financial & Technology Professionals . Specifically designed for spas , it provides a financial reporting system that enables operators to measure , compare and report on the financial health of their business . The flexibility of the system allows spas of any size to enjoy success from implementation .
32 PULSE n SEPTEMBER 2024