The aim of many home businesses or any business for that matter is to allow its owner to earn money while he or she has more time for himself or herself. Many home business owners also earn profits doing things that they love doing. These great advantages of putting up and maintaining a business has long attracted people to leaving their desk jobs and staying at home to start up a home business. If managed well, a home business can earn money, and can expand to form larger brick-and-mortar companies.

One of the secrets to managing a home business and maintaining its status is to completely know the financial state of the home business. The only way this can be fully gauged and reported is by preparing financial statements. As with financial statements of other companies, home business financial statements contain records of the home business' activities as they relate to finances. Financial statements allow a home business owner to see how profitable the business is, and how well-prepared it is to last in both the short and long term.

First, the Balance Sheet, or the statement of a business' financial condition, contains reports on assets, liabilities, and the company's net equity. Always keep records of your home business equipment, as well as any debts that you might owe in order to prepare this document.

The Profit or Loss Statement, or the Income Statement, arises from analysis of the company's operations during a certain time. Keep all your profit records in order to make this document; keep records of your expenses as well.

The Cash Flow Statement is a formal report of a company's operations, investments, and activities related to finance. The Statement of Retained Earnings, on the other hand, is a written report detailing why a company's earnings changed from one reporting period to the next. In order to prepare these statements, study the feedback from your customers, and keep records of all transactions, whether for buying things for the company, or selling products and services.