Stacking the Building Blocks: New Resources for Small Businesses from the SEC

The Securities and Exchange Commission’s (SEC) Office of the Advocate for Small Business Capital Formation (the "Office") recently released new resources focused on financial statements for small business owners.[1] The new resources include one-page summaries on the balance sheet and on the income statement.[2] These resources add to the SEC's "Capital-Raising Building Blocks", which is a series of one-page summaries that break down fundamental capital-raising concepts.[3] 

What are these financial statements and why are they important? 

What is a balance sheet?  A balance sheet is a key financial statement that businesses prepare to provide a snapshot of their financial position at a given moment.[4] The balance sheet outlines the company's assets (what the entity owns), liabilities (what the entity owes), and equity (the difference between assets and liabilities, or residual interest).[5] 

What is an income statement?  An income statement, also known as a profit and loss statement, is a fundamental financial statement that businesses prepare[6] to show their  financial performance over a defined period.[7] The income statement covers the business’ revenue (total value of goods or services sold), expenses (costs incurred), and net income or loss (profit earned or loss sustained after deducting all expenses from revenue).[8] 

Office of the Advocate for Small Business Capital Formation

The Office of the Advocate for Small Business Capital Formation is an independent office established by the SEC Small Business Advocate Act of 2016.[9]  The Office is focused on advancing the interests of small businesses, including local businesses, growth companies and startups to smaller public companies, and their investors.[10] 

Impact of Small Businesses

Earlier this year, Stacey Bowers, Director of the Office of the Advocate for Small Business Capital Formation highlighted the importance of small businesses in the US in her prepared remarks before the SEC’s Small Business Forum.[11]  Director Bowers noted that small businesses created over 43% of US GDP in 2023.[12]  In addition, Director Bowers presented interesting data on the small business market from the Office’s Annual Report for Fiscal Year 2023.[13]  For example, 40% of small businesses (with employees) are women-owned or co-owned.[14]  Director Bowers noted that over the last 10 years, diverse businesses created over 4.7 million jobs.[15]  Finally, small businesses accounted for 54% of employment in rural areas.[16]

We will continue posting news and resources for small businesses and startups on the Forum on Entrepreneurship & Law.  For more resources for small businesses, visit https://www.sec.gov/resources-small-businesses.

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[1] See Press Release, Sec. & Exch. Comm’n, SEC Publishes Small Business Educational Resources About Income Statements and Balance Sheets, Sec. & Exch. Comm’n (Sept. 9, 2024), https://www.sec.gov/newsroom/press-releases/2024-120 [hereinafter the “Press Release”].

[2] Id.

[3] See Press Release, supra note 1.

[4] See Off. Advoc. For Small. Bus. Cap. Formation, Sec. & Exch. Comm’n, What is a Balance Sheet 1, 1-2 (2024), https://www.sec.gov/files/balancesheet-building-blocks.pdf.

[5] Id.

[6] See Off. Advoc. For Small. Bus. Cap. Formation, Sec. & Exch. Comm’n, What is an Income Statement (2024),  https://www.sec.gov/files/income-statement-building-blocks.pdf.

[7] Id.

[8] Id.

[9] See SEC Small Business Advocate Act of 2016, Public Law No: 114-284 114th Congress (2015-2016).

[10] See Press Release supra note 1.

[11] Press Release, Stacey Bowers, Dir., Off. Advoc. for Small Bus. Cap. Formation, Sec. & Exch. Comm’n, Amplifying Voices: Opening Remarks at the SEC’s Small Business Forum, Sec. & Exch. Comm‘n (June 29, 2024), https://www.sec.gov/newsroom/speeches-statements/bowers-remarks-small-business-forum-041624.

[12] Id.

[13] See Off. Advoc. for Small Bus. Cap. Formation, Sec. & Exch. Comm’n, Annual Report Fiscal Year 2023 (2023), https://www.sec.gov/files/2023-oasb-annual-report.pdf?utm_medium=email&utm_source=govdelivery.

[14] Id. at 39.

[15] Id. at 50.

[16] Id. at 65.