Making time to look over your financial reports each month is an important part for any business owner. If you are not taking the time to review your reports, because you are too busy or perhaps you don’t really understand what you are looking at and it doesn’t make sense to you, then here are 6 reasons we recommend that you start.

Before we get to our 6 reasons, let’s have a quick look at which reports you should be looking at. At the bare minimum, and depending on the complexity of your business, you should be reviewing the following;

Statement of Financial Performance:

Also known as the Profit and Loss report (P&L) or the Income Statement- this tells you how your business is performing over a period of time, such as a month or a financial year. In broad terms it shows the revenue that your business has generated, less the expenses for the same period. In other words, it shows you how profitable your business has been.

 The Statement of Financial Position:

Also known as the Balance Sheet, this report shows the value of your business’s Assets, Liabilities and Equity,

  • Assets include items such as money in the bank accounts, plant and equipment, accounts receivable balances
  • Liabilities include items such as bank loans and credit cards, accounts payable, and hire purchase balances
  • Equity is the difference between your assets and liabilities and includes your business’s retained earnings and owner funds.

Accounts Receivable Ageing report (Aged Receivables):

This report shows you how much money is still owed to the business  at a certain time, and is usually segmented as to how overdue they are. Generally, you will have Current, 30, 60, and 90 day columns.

Accounts Payable Ageing Report (Aged Payables):

This report shows you who the business owes money to  at a certain time and, is usually segmented by overdue periods.

So, why bother?

  1. Understand your business better
    By looking at your P&L report monthly you will be able to get a good picture of how your business is performing month by month and it will give you a better understanding of what makes up your profit. It can be helpful to compare periods, so you can clearly see on one page the revenue and expenses by month. This will help identify any trends in your data and may also help to highlight anomalies in coding/categories.
  2. 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 and your balance sheet, as there is a lot that can be learnt about a business from these two reports together. If you are unsure what some of your balances are in your accounts, get in touch and we can explain them further.
  3. Get paid quicker and reduce bad debts
    From 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 is of it not being paid at all, so it is important to keep on top of this.
  4.  Better relationships with your suppliers
    Assuming you are entering your suppliers invoices into your accounting software (recommended for businesses to get an accurate profitability figure) 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.
  5. Better cash flow
    By having an accurate understanding of how much money your business is owed, and how much money your business owes, can help with cash flow planning to ensure that there is enough money when needed. Further, understanding the trends of your business, its profitability drivers, its expenses ect, can help to plan sales and marketing campaigns so that the revenue keeps coming in.
  6.  Better business decision making
    Your financial reports tell you the story of your business and it’s important that you understand the story they are telling you. The better you understand what is going on in your business, the stronger position you will be in to make business decisions that effect 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 is going on in your business, then get in touch with us so we can arrange a time to go through them with you.

Your business success is important to us and we are here to help.