In a sole proprietorship, personal finances are more closely linked to business operations than with any other type of business structure. Business profit is taxed as personal earnings and business financing depends on personal creditworthiness. Although the owner of a sole proprietorship business does not have to prepare financial statements for internal review by a board of directors, she can still use these documents as a source of valuable feedback about her company's financial health.

Cash Flow Projection

Because sole proprietorships often use personal income to supplement business revenue when operating capital is short, it is particularly important to proactively recognize and address cash flow shortfalls. A detailed and current cash flow projection will enable you to anticipate and plan for these situations by organizing personal finances by keeping personal funds sufficiently fluid or seeking additional financing when a shortfall is imminent. In addition, a cash flow projection can tell you when your company has enough liquid cash to enable you to withdraw sums for personal use.

Profit and Loss

A profit and loss statement provides information about how much your company has earned during a specific period such as a month or a year. In a sole proprietorship, most of the revenue and expenditure sums on your cash flow projection will transfer directly to your personal tax form and provide the basis for your income tax liabilities. In addition, a profit and loss statement can help you to identify areas in which your business is especially profitable or is spending too much money, providing information that can help you to improve your business -- and personal -- bottom line.

Balance Sheet

A balance sheet for a sole proprietorship provides a snapshot of the company's net worth at a particular moment in time, listing and comparing the value of assets such as cash on hand and equipment value with liabilities such as debts and accounts payable. The assets and liabilities represented by a sole proprietorship's balance sheet are directly connected to the personal net worth of the owner, who owns everything the business owns and owes everything that it owes.

The Big Picture

Considering your sole proprietorship's financial statements in tandem can provide you with an overview of your company's financial picture as well as its relationship to your personal finances. If your profit and loss statements show that your business is earning money, but your cash flow projection shows that your business is short on cash, it is worth infusing additional personal funds because your company is on the right track toward breaking even and becoming profitable. If your balance sheet shows that your company has assets, but your profit and loss statement shows that you are losing money, this information can act as a wake-up call to rethink your business model or use your assets more conservatively.