Balance sheet, P&L, and cash flow statement: Understanding your e-commerce financial statements
Kaci Carson
November 28, 2023
Understanding and tracking your e-commerce financial statements is an important aspect in managing your business finances. In this article, we’ll explain what each financial statement shows, how they relate to each other, and most importantly, how analyzing them properly can positively impact your business.
Having an increased understanding of each of these statements is key in making strategic decisions and for overall sustainability in the long run. More specifically, seeing and interpreting the patterns within these statements can provide valuable insights into the effectiveness of your current financial processes.
The balance sheet: A look into assets and liabilities
Your e-commerce balance sheet provides a snapshot of your company’s financial position at any given point in time. It lists your business assets (things you own that have value like cash, inventory, accounts receivable, etc.) and liabilities (money you owe like accounts payable, taxes, loans). The difference between assets and liabilities is your own equity in the business. Monitoring your balance sheet helps you to spot trends in your asset and liability balances.
If you spot growth in assets like cash and inventory it’s a signal your company is expanding. If you spot a rise in liabilities it may indicate overspending or taking on too much debt. Overall, frequently visiting your balance sheet provides you with important insights into your financial position. Benchmarking against previous balance sheets can help you identify positive or negative momentum over time. Consider comparing your balance sheet to industry standards to also give perspective on whether your company has a healthy financial standing.
How to access your balance sheet in your accounting software
Accessing your balance sheet in your accounting software is a simple process. Follow these steps to locate the balance sheet report:
The P&L statement: Your company’s profitability
Understanding your e-commerce profit and loss (P&L) statement, also known as the income statement, is another critical aspect of monitoring your business’s financial statements. The P&L not only gives you insight into your business’s daily operations but also into your profitability. Key elements like gross margin showcase how profitable your sales are after deducting total product costs.
The P&L also breaks down operating expenses such as marketing, payroll, and utilities. Tracking these line items against your revenue reveals where your profitability currently stands and highlights areas where you may need to control spending. Comparing your actual P&L results against projections aids important business decisions – for example, determining which products and sales channels are truly profitable to double down on, identifying unprofitable aspects to cut, and setting realistic growth targets for the future.
How to access your P&L in your accounting software
Accessing your profit and loss statement is a simple process. Use the following instructions to access the report in your accounting software:
The cash flow statement: Your company’s cash health
While your P&L statement is the litmus for overall profitability, your cash flow statement is key for assessing liquidity, the actual cash flowing in and out of your e-commerce business. Your cash flow tracks how much cash you have readily available. It looks at your cash generation versus your cash usage. Cash flow is driven by net income sources such as revenue. Investing and financing cash flows stem from purchases of assets or taking on loans.
Closely monitoring your cash flow metrics indicates whether your company has sufficient cash on hand to fund current or future growth plans and expenses. If cash is tight, you may need external financing through investors/loans or to cut spending in a certain area. If cash balances remain consistently strong, you have the ability to reinvest by purchasing more inventory, increasing advertising or marketing, or upgrading technology.
How to access your cash flow statement in your accounting software
Accessing your cash flow statement is a simple process. Use the following instructions to access the report in your accounting software:
How the statements connect: The full financial story
Analyzing your financial statements altogether paints a complete picture of your e-commerce business’s financial health and growth potential. To recap, the balance sheet displays your assets and debts. The P&L statement shows your profits and losses. Your cash flow reveals your business’s liquidity. Changes in one statement flows into the others.
For example, growing profits on your P&L statement may provide the cash flow to purchase more assets that appear on your balance sheet. However, heavy investing can reduce your cash balances shown on the cash flow statement.
Gaining a full understanding of your business’s financial standing requires reviewing trends across your balance sheet, P&L statement, and cash flow statement as a whole. Unexpected changes in one statement often impact the others down the line. A regular, comprehensive analysis will help you make smart financial decisions and investments to support your e-commerce company’s sustainable growth.
How to sync data from your e-commerce platform to your accounting software
An overlooked aspect that is key to smooth operations is ensuring your data across platforms is up-to-date. Manually transferring data leaves room for human error, but accounting integrations guarantee continued accuracy in your numbers and sales
Having accurate, timely data is not only important for reporting purposes but also important for decision making and overall oversight of the financial performance of your e-commerce business. Using Amaka’s accounting integrations you’re able to sync data from your e-commerce store to your accounting software in a matter of minutes.
To set up the integration visit our website where you can choose the plan that’s right for you. You can also choose between our 2-Minute Express or Advanced configuration methods. You can also contact our customer support team for any questions or get help via our Guided setup option, where our team will meet with you via Zoom to help you get started.
Key takeaways on e-commerce financial statements
When looking at each of these e-commerce financial statements, having a more developed understanding of each of them and their applications can only benefit you as a business owner. Diving deeper into the context behind your financial metrics allows you to make strategic, data-driven decisions, and essentially aids you for now and for future scaling and growth.