As a business owner, I receive many statements and invoices every month. But there is one statement that is more important to me than any of the others. To me, it is the ultimate scoreboard of all business ventures: the income statement.

The income statement says it all. It is like a report card. It is the ultimate, unequivocal answer to important questions: Are you getting the job done? Are you a successful entrepreneur? Each month you have these questions boldly answered as you look at the bottom line. Then you either smile or cringe. The more often you look at this statement at the end of the month and smile, the greater the job you are doing.

And smiling while looking at a report card is a new experience for me. I actually look forward to the 15th of the month, when this report is usually ready for me. It makes me want to rush home to share it with my parents, who suffered though so many C-dominated report cards during my school days. Now I know what the A students felt like!

As I continue to learn and grow as an entrepreneur, I find myself spending more and more time studying this statement. I believe the time I spend analyzing the income statement is some of the most productive time I spend each month. From this analysis often comes ideas that turn into action solutions to solve some of the problems my business is encountering.

Here is a little primer on a simple income statement. It is composed of five basic parts:

• Revenues. This includes all revenue sources, although the most common category - and usually the largest - is revenues generated from sales. Effective statements break down revenues into different product lines, customers or departments, making it easier to pinpoint the source of revenue.
• Cost of goods (or services) sold. This category, often referred to as COGS, should include materials, labor and other items that can be specifically linked to the cost of the products or services sold.
• Gross margin. Also called gross profit. This is the difference between revenues and cost of goods sold and is often quoted as a percentage. This is a good line item to work on to increase the percentage.
• Operating expenses. This includes a number of expenses, from rent to materials and equipment to salaries and health benefits. Some of these items are fixed expenses that don't vary with sales volume. Others are variable and do vary with volume. The moreexpense categories you include, the more meaningful and accurate the picture of your business you will see within the income statement.
• Net profit (pre-tax). This is your grade - the bottom line. Here is where you begin to get a hint of how you are doing for the month and the year.

Just like a school report card, the harder we study and work on the details, the better the grade - or in this case, the more money we have in the bank. Come to think of it, I believe I will show my mother my business report card. It's been an awfully long time since I gave her anything she could put on her refrigerator door to make her smile.