It’s imperative to regularly review your financial reports each month. If you’re not doing this due to being too busy or not understanding the reports, here are six reasons why you should start:
Before discussing the six reasons, let’s quickly outline the essential reports you should review. Depending on your business’s complexity, the following are the minimum reports you should be looking at:
Statement of Financial Performance (Profit and Loss Report/Income Statement): This report shows how your business is performing over a specific period, such as a month or a financial year. It details the revenue generated and the expenses incurred, highlighting the profitability of your business.
Statement of Financial Position (Balance Sheet): This report provides a snapshot of your business’s financial condition by outlining its assets, liabilities, and equity.
- Assets: Include cash in bank accounts, plant and equipment, and accounts receivable.
- Liabilities: Include bank loans, credit card debts, accounts payable, and hire purchase balances.
- Equity: Represents the difference between your assets and liabilities and includes retained earnings and owner funds introduced.
Accounts Receivable Ageing Report (Aged Receivables): This report shows the amounts owed to the business as of a certain date, segmented by how overdue they are (e.g., current, 30, 60, and 90 days).
Accounts Payable Ageing Report (Aged Payables): This report details the amounts the business owes to suppliers as of a certain date, also segmented by overdue periods.
Six Reasons to Review Your Financial Reports Monthly:
- Enhanced Business Understanding: Reviewing your Profit and Loss report monthly helps you understand your business’s performance and profit components. Comparing different periods or analysing month-by-month P&L can reveal trends and anomalies, such as unusual expenses or earnings.
- Accurate Lending Information: Financial institutions require detailed financial reports when considering loan or overdraft applications. Understanding and accurately reporting your account balances can improve your chances of securing funding.
- Improved Receivables Management: Monitoring your Accounts Receivable Aged Summary monthly allows for prompt follow-ups on overdue accounts, leading to quicker payments and reduced bad debt risk.
- Better Supplier Relationships: Reviewing your Aged Payables report ensures timely payments to suppliers, crucial for maintaining good relationships. Accurate entry of supplier bills into your accounting software is recommended for precise profitability figures.
- Enhanced Cash Flow Management: Knowing how much money is owed to and by the business aids in effective cash flow planning. Understanding business trends, profitability drivers, and expenses can help in planning sales and marketing campaigns to maintain steady revenue streams.
- Informed Decision-Making: Financial reports provide a comprehensive story of your business. A thorough understanding of these reports enables better business decisions, enhancing profitability and 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.
Your business success is important to us, and we are here to help you.
