Making time to look over your financial reports each month is an important task for any business owner and business leader.
Not sure what each financial report represents, we can help help you.
Firstly lets get you familiar with the key reports to review and why...
The profit and loss account. This report tells you how your business is performing over each financial year in terms of its Income over the months and the incurred expenses in the same period and tells you if you made a profit in that year.
The Balance Sheet. This tells you the value of your business in assets, liabilities and equity. Assets included fixed assets, current assets such as money in the bank, stock / WIP and debtors. Liabilities will include all debits such as bank loans, credit cards, open suppliers and other liabilities. Equity is the difference between your assets and liabilities and included retained earnings and owners’ funds that were introduced.
Accounts Receivable Ageing Summary Report – this shows how much money you are owed at the end of each month and how much is owed by 30, 60, 90 + days
Accounts Payable Ageing Report – this report shows who the business owes money to as at a certain date in time and, like the Accounts Receivable Ageing report, is usually segmented by overdue period.
Here are 6 reasons why you should make time to review your finances every month so your business can thrive.
Understand your business better by regular review of your Profit and Loss Report and you will get a great overview on how your business is performing. It can be helpful to compare periods, or to look at a month by month for both Revenue and Costs both will help you identify the trends in your data and spot any errors in billings and overspends when it comes to your cost base.
Accurate information for lending purposes – If you are applying for a loan or an overdraft, the bank or financial institution will look closely at both your Profit and Loss report and the Balance Sheet as a lot can be learned about a business by looking at these reports together. If you are unsure what some of your balances are in your accounts, get in touch and we can explain them further.
You can get paid quicker and reduce bad debts – by looking at your Accounts Receivable Aged Summary each month you can follow up with overdue accounts promptly which often results in getting paid quicker. The longer an overdue amount is left unpaid the higher the risk of it not being paid at all, so it is important to keep on top of this.
Better relationships with your suppliers – Assuming you are entering your supplier bills into your accounting software your Aged Payables report will alert you to any unpaid or overdue amounts. Supplier relationships are an important aspect of your business and paying on time is crucial to maintaining those relationships.
Better cashflow – having an accurate understanding of how much money the business is owed, and how much money the business owes, can help with cashflow planning to ensure that there is enough money when needed. Additionally, understanding the trends of your business, its profitability drivers, its expenses, etc., can help to plan sales and marketing campaigns so that the revenue keeps coming in.
Better business decision making – Your financial reports tell the story of your business and it’s important that you understand the story that they are telling you. The better you understand what’s going on in your business the stronger position you will be in to make better business decisions that affect the profitability of your business and its financial viability.
If you would like to know which reports are relevant to your business, and you want to better understand what’s going on in your business, then get in touch so we can make a time to go through them with you.
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