7 FINANCIAL REPORTS EVERY SMALL BUSINESS OWNER SHOULD REVIEW EACH MONTH
Being the owner of a small business and the sole decision maker can get very tiresome. You need to check whether sales are on the increase, expenses have been properly controlled or not, customers settle their debts timely, and whether your business has sufficient funds for meeting daily expenses. Getting help from a small financial report could make this task quite a piece of cake for you.
If you think that a financial report gives you information only about the amount of revenues and expenses, then you are quite mistaken. A financial report will convert all business transactions into some valuable information for the owner. Instead of being occupied with individual receipts, invoices, and other documents like bank statements, reports provide you with an opportunity to have a broader image of your business.
So, 7 main financial statements are mentioned below. They provide a quick glance of every area that matters for a small business and that is regularly reviewed on a monthly basis!
1. Profit and Loss Statement
The Profit and Loss statement, or P&L for short, is without doubt one of the most vital documents for any business owner.This report highlights your business' earnings and expenses, and whether you profited or lost within a given time period.
A regular (e.g. month-to-month) P&L can assist you in finding solutions for the below queries, among others:
What was my business income for the month?
How much did I spend?
Have expenses gone up?
Is the business making profits?
What's the comparison between this and the past months?
Suppose sales have gone up but profits have gone down, then PnL might help you find the reason. Perhaps you spent more money on advertising, payroll or other running expenses.
2. Balance Sheet
The Balance Sheet gives a quick view of which way your business is going financially at the given moment. The balance sheet usually consists of these three items:
Assets
liabilities
Owner's equity
Assets are resources like cash machinery stock, and customers who are not able to pay their debts yet.Then again, such assets can be used as repayment for such a business. In addition, the owner may be able to use some of its funds for new developments, etc.
The assets may consist of money from customers who have not paid their debt yet, while the liabilities may be the amounts owed to a company by way of bank loans, credit cards, unpaid invoices, etc. Checking your Balance Sheet monthly can give an idea of your business property and your debt.
Changes that might need immediate action will be identified such as growing debt or decreasing cash level.
3. Cash Flow Statement
Cash flow management is as crucial as profit-making.
Yes, profit is a good sign, but if customers are not making their payments on time or the company's expenses exceed its revenue, one may not have enough cash to meet its obligations.
A cash flow statement is a document that reveals, in monetary terms, how the cash comes into and goes out from your business.
It can also tell whether the cash coming in has resulted from customer payment while the cash going out is the business's expenses, equipment purchase, loan payments, and other business activities.Carefully watching the flow of money on a monthly basis can help one plan for expenses and stay from getting caught unexpectedly.
4. Accounts Receivable Aging Report
Business owners, if your company is allowing customers to pay you only after getting their goods or services, you definitely need to monitor your accounts receivable.
A receivable aging report would inform you how much the customers are owing you and how long those receivables have been unsettled.
Say, for instance, you might identify invoices for:
Recently paid
1, 30 days late
31, 60 days late
61, 90 days late
90 or more days late
Such a tool of management reporting can also point out the clients who need the payments being chased.
Cash flow depends very much on timely payment of receivables and this way, checking up on your receivables on at least a monthly basis would not only be a good strategy but also a healthy practice for a cash-rich company.
5. Accounts Payable Report
Receivables are the amounts from different clients or customers your business is yet to be paid, whereas payables refer to the money your business is yet to clear for services received, products bought, etc.
Keeping track of your Accounts Payable Report can help you identify those payments you haven't done as yet and the ones coming up. This way, you can plan the payment of those amounts to vendors suppliers etc. in your organization.
If you can review the report at the month-end, it'll ensure that you are never missing out on the payment dates and because of this, you'll manage to dodge getting into the late fee trap.
Planning your spending of cash is another significant use that a payable report serves. If you have a few major expenses to be paid off before long, this report will alert you, and you can so arrange the necessary funds for those expenditures.
6. Budget vs. Actual Report
A budget can work as a tool to give your company a financial plan, although the main role it plays is to outline and control how money is spent in your operations. It's one way to manage your funds effectively. But it doesn't stop there when the time comes to budgeting the funds; one important thing is to analyze the outcomes of budgeting vs. actual financial operations.
Your actual financial results are another thing to consider.
A budget vs. actual reports is a way of telling you whether your business is spending and earning a lot more or only a little.
Take this for example, you may set aside $2,00 through your monthly budget for marketing and at the end of the month, you may have spent $3,00 on marketing. This gap between actual spending and budgeted is what you may want to look into more deeply.
Avoid the habit of thinking the discrepancy is always bad. It may be that additional investments have brought about more sales. So the report is the means only of highlighting differences but also of identifying the root causes.
Soon, these kinds of analysis will help to refine your budgeting skills, making each one of them more accurate and realisable.
7. Sales or Revenue Report
Your sales report acts like a magnifying glass on revenue generating activities in your organization.
Depending from case to case you might decide it worthwhile to track your sales in these ways: sales by product/service/customer/location/sales channel.You can make this data useful by knowing which is your best revenue generator.
Take this case study: one service generates three times the revenue of the second one. You might change your strategy and put your marketing efforts on the service that is bringing the most money.
Monthly sales reports are also very useful to track the ups and downs in consumer preferences and sales patterns.
Make Financial Reports Part of Your Routine
You do not have to be an accountant to benefit from financial reports. The key is understanding what each report tells you and reviewing the information consistently.
Start with these seven reports:
Profit and Loss Statement
Balance Sheet
Cash Flow Statement
Accounts Receivable Aging Report
Accounts Payable Report
Budget vs. Actual Report
Sales or Revenue Report
If the numbers are difficult to understand or your books are not up to date, professional bookkeeping support can make the process much easier.
The Bookkeeper Marketplace helps small business owners connect with bookkeeping professionals who can help organize their financial records and keep their books current. With the right support, you can spend less time sorting through financial paperwork and more time using your numbers to make smarter business decisions.
Your financial reports tell the story of your business. Make time to review that story every month—and use what you learn to build a stronger, healthier business.
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