As you have seen, you can gain insights about your business from your Income Statements and Balance Sheet. However, looking at these from just one year can only tell you so much. Comparing the statements against previous years allows you to see changes and trends. This can lead you to ask important questions about different areas in your business, and why they may be performing differently. The comparison helps you to make key decisions to refine your processes and increase your growth. Many of the alumni found that analyzing their finances helped them to see and manage their businesses differently. Let's look at some examples that could relate to your business. Kavitha: So without the Balance Sheets, you can't evaluate your performance. So that is very important to know, 'What is the percentage of increase in your income every year?' Patricia: It's extremely important to manage your own financial information because without that you're making gut decisions; you're not actually planning yourself properly. So if you know that you have a certain amount of money that you can make, and there are glitches along the way, there are production problems, then you know how much money you have to play with. So then you're able to make correct decisions. You shouldn't just take risks; you should take calculated risks to be able to move yourself to the next level. Ehime: Especially with the products, I started learning new things like just because all yogurt shops do yogurt smoothies, doesn't mean we have to. What are the numbers? Do we really sell enough of that for us to invest in the cups and the spoons and the straws? So it made me start taking a critical look at every aspect of the business and everything that we were doing. Let's look at some examples: Improving your gross profit from one year to the next is positive. However, this might mean either that you have sold more, or that you have reduced your direct costs. You will need to look more deeply to understand which of these is true, or whether it is a combination of both. Improving your operating profit is again typically positive. It could be based on reducing your overheads or a result of the factors already mentioned. Seeing this trend increasing from year-to-year will tell you something about the performance of the business, but it should prompt you to explore the reasons for the change. Similarly, changes on your Balance Sheet should encourage you to explore reasons why these changes may have happened. An increase in your accounts receivable – the amount owed to you by your debtors – usually goes hand in hand with growth. More sales typically means more debtors. However, accounts receivable can also increase if you are being paid more slowly, or not collecting your debts as effectively. You may need to ask more questions of your financial advisors to understand the drivers of the changes. In the next section, you will have the opportunity to explore and explain such changes as you look at your financial statements across two years. Even when you examine your statements and compare the detail between years, some of these relationships and patterns may be hard to see. Each year, your business is likely to be very different, and the corresponding variation in your numbers may confuse a direct comparison.