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Entrepreneurs tend to create personal financial statements for one of two reasons. Either they love numbers and want to track expenses and income in order to know what makes their business tick, or they are meeting with a lender or an investor who will want to review financial statements.

Business owners who are intimidated by financial analysis tend to fall into the second group—they act only when pushed. But that can be a mistake. Knowing one's way around a financial statement is an important step in maturing as a business owner. A personal financial statement is also a helpful tool in helping you to understand the separation (and blurring of the line) between an individual's assets and liabilities, and those associated with his or her business venture.

To be sure, managing financial statements is not exactly the most creative or glamorous aspects of running a business. "If ever I ask people why they want to start a business, it's a sense of self fulfillment or I want someone to be able to experience this certain product," says Chuck Matthews, executive director of the center for entrepreneurship, education and research at the University of Cincinnati. "But creating and maintaining a budget is one of the most important things to do."

So, whether you are ready or not, you should sit down with your financial account information and create a series of Excel spreadsheets—starting with a balance sheet and income statement. These documents will make up your personal financial statement.

Creating a Personal Finance Statement: The Balance Sheet

A balance sheet's purpose is to show the assets you own and the liabilities you owe. When calculated, the positive assets and negative liabilities will show your net worth.

Among the assets to include on your balance sheet: bank account balances, the value of stocks owned, and the value of your property. Simply log on to your bank's account and any brokerage accounts to obtain current numbers. In order to obtain accurate property values, you'll want to call your real-estate agent who does appraisal and get an updated value assigned to any property you own. While you'll want to create a new personal financial statement every month, this step isn't necessary every time – just try to keep your property value updated each quarter.

As for liabilities, add any sort of lease, mortgage, credit-card debt, or loans you are currently repaying. Simply log on to your lender's site (which might be the same as your personal and business accounts from the assets column) and get the most recent numbers. Some easily overlooked liabilities are tax payments and accounts payable.

It helps to consider this balance sheet just a snapshot of what you have and what you owe. You are not

creating a ledger for the week, month, or year. You are simply trying to take a picture of your net worth at one moment in time.

For a complete list of all the items a balance sheet can include, check out's detailed guide.

Creating a Personal Finance Statement: The Income Statement

For an individual or a fledgling young start-up, an income statement can be relatively simple. If the balance sheet represents how much you own and owe, the income statement represents how much you made and how much you spent.

Unlike a balance sheet, an income statement shows what happened financially over a period of time – say, one month.

To get started, take income data from the balance sheet, including salary, rental income and business income. Sums can be lumped together or broken down into sub-categories, depending on the purpose for and intended use of your income statement.

Next, document and tally your expenses, including wages paid, utilities, and rental fees for the same time period.

Some experts suggest keeping a separate expense category in an annual statement for Income Tax Payable, and other taxation due.

If you or your business has had any unusual occurrences or unexpected expenses in the time period you are documenting, feel free to add categories for "extraordinary gains" or losses, for events and transactions that are unforeseen or rare, such as repair from a natural disaster or corporate adjustment to a new federal or state regulation. For definitions of terms that should be included on your income statement, consult the Financial Accounting Standards Board website.

Matthews notes that for accounting purposes, you'll want to create a field for miscellany, which will include items such as bank interest.

Once you have filled in your financial information, take the difference between your income and expenses, both regular and extraordinary. Voil a! This is your net income.

Creating a Personal Finance Statement: Hiring an Accountant or Financial Advisor

Texas Christian University accounting professor Dan Short recommends enlisting a finance professional almost anytime a formal financial statement is called for. He thinks it is smart to meet with a certified professional accountant annually, and to work with a financial advisor on a regular basis throughout the year.

"As a business professor, I'd far rather see an entrepreneur focusing their time on growth and marketing and whatever's actually in their skill set than learning tricky accounting that can easily be taken care of by a professional," he says. "There are so many technical rules for accounting that you will be judged by having your financial statement in according to generally accepted accounting principals. And if you don't, you'll loose credibility with the bank or investor you're dealing with."

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