Business owner looking for red flags in a financial statement

Analyzing Your Financials? Here’s How to Look for Those Red Flags

Assessing the overall health of a business comes down to analyzing the basic moving parts. And one of the most essential parts of this process is a financial statement. Without an accurate financial statement, productivity and profit margins could be way off course.

Keeping up with financials is synonymous with looking for red flags. And knowing what to look for can make all the difference in the world.

What is a Financial Statement?

A financial statement is basically a collection of reports that can give a company or business organization an overview of cash flow and overall financial health. And these statements often come in the form of reports which can include:

  • Balance sheets
  • Itemized expense statements
  • Income statements
  • Cash flow statements

Keeping a financial statement accurate and truly reflecting the company’s financial health is critical to any successful business venture. But beware – red flags may lurk within.

Common Red Flags to Look Out For

As mentioned, knowing the red flags is the first step in keeping financial records accurate. And a few of the main culprits are:

  • Inaccurate numbers
  • An increase in debt-to-equity
  • Declining revenue over multiple quarters (or years)
  • Unsteady cash flow
  • Expenses marked “other” on a balance sheet
  • Liabilities are higher than assets
  • A decrease in gross profit margins

Though the above list references the most common red flags, there are many other indicators that can arise, and these may vary depending on the nature of the business itself and the product or services offered. As such, seeking help from a financial advisor is highly recommended to keep business financials accurate.

Financial Optics provides essential support to strengthen your statement processes, increase profitability, and free your staff’s time to focus on other aspects of the business.