You're struggling to connect financial reports. How can you weave a compelling narrative across them?

1 Understand Basics

Before you can connect the dots, you need to understand what each financial report represents. The balance sheet shows your business's assets, liabilities, and equity at a specific point in time. The income statement, or profit and loss statement, outlines your revenues, expenses, and profits over a period. The cash flow statement tracks the cash entering and leaving your business. These three reports offer different perspectives of your financial situation and are the foundation of the narrative you're building.

2 Identify Trends

To create a narrative from your financial reports, look for trends and patterns over time. Is your revenue growing or shrinking? Are certain expenses consistently high? How do seasonal changes affect your cash flow? By answering these questions, you can craft a story that explains the reasons behind these trends. This analysis will help you understand the dynamics of your business, which is essential for making informed decisions.

3 Connect Data

Your next step is to connect the data points across different reports. For example, if your income statement shows an increase in sales but your cash flow is not improving, you need to investigate why. Perhaps your balance sheet reveals that accounts receivable are growing, indicating that sales are up, but the cash hasn't been collected yet. This connection helps explain the full picture and can lead to actionable insights, like improving your collections process.

4 Highlight Key Metrics

Select key metrics that are most relevant to your business's performance and focus on those in your narrative. These might include net profit margin, return on assets, or current ratio. By highlighting these metrics, you can draw attention to the most critical aspects of your financial health. This approach simplifies the story for stakeholders who may not have a deep understanding of financial details but need to grasp the overall performance.

5 Add Context

To truly engage with your financial narrative, you need to add context. This means going beyond the numbers and explaining how external factors such as market changes, new competitors, or regulatory shifts have impacted your financials. By providing this context, you make the narrative more relatable and insightful, offering a clearer understanding of how these factors intertwine with your business's financial outcomes.

6 Forecast Future

Finally, use the historical data from your reports to forecast future performance. This forward-looking perspective is a powerful component of your narrative because it sets expectations and prepares stakeholders for what's to come. By using past trends and current data as a basis, you can project future revenues, expenses, and cash flow, giving everyone a glimpse into the potential future of the business.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?