As a business owner, having a solid understanding of your finances has never been more crucial. In many cases, business priorities have shifted, customer behaviours have changed, and revenue streams have had to adapt in order to sustain a profitable business model.
In this evolving environment, it is vital to track, monitor, and enhance your financial performance by maintaining a clear view of your key financial reports and metrics.
Mastering your financial reports:
In the past, any surplus cash within the business may have been viewed as an excess that needed to be spent. However, recent times have proven that maintaining reserves is essential for the long-term stability and sustainability of your business.
To effectively manage your cash, you must regularly review your accounts, financial reports, and dashboards, allowing you to fully understand the ‘true financial picture’ of your business.
Key financial reports to focus on:
- Budget – The budget is your financial roadmap, tied closely to your strategic objectives. It outlines the funds required to achieve your primary business goals, as well as the anticipated revenue and profit during the period. It serves as a key reference point, enabling you to compare actual performance (historical data) with the projected figures, allowing for the identification of discrepancies, gaps, and missed targets over a given timeframe.
- Cashflow Statement – The cashflow statement illustrates the flow of money into and out of your business. By understanding these cash inflows and outflows in detail, you can manage the company’s liquidity, aiming for a ‘positive cashflow position’, where inflows exceed outflows. This ensures that the business has enough cash on hand to cover expenses, operate efficiently, and generate profit.
- Cashflow Forecast – A cashflow forecast projects future cash movement by analysing past trends. This enables you to foresee potential cashflow challenges weeks or even months ahead, allowing you time to address them. Whether by increasing revenue streams, reducing costs, collecting outstanding invoices (aged debt), or seeking additional funding, cashflow forecasting provides an opportunity to take pre-emptive action.
- Balance Sheet – The balance sheet presents a snapshot of your business’s assets, liabilities, and equity at a specific point in time. In essence, it shows what the business owns (assets), what it owes (liabilities), and the equity invested in the company. The balance sheet is a valuable tool for understanding the financial health of your business, particularly when making significant financial decisions, such as investing in new assets or seeking financing.
- Profit & Loss Statement (P&L) – The profit and loss statement summarises the company’s revenues, costs, and expenses over a specified period. Unlike the balance sheet, which provides a momentary view of the business’s financial position, the P&L offers a detailed account of how revenues and expenses have fluctuated over time. It helps you assess financial performance, identify trends, and understand the overall profitability of the business.
Consult with us about your accounting and financial reporting needs.
We are here to assist you with navigating the essential reports in your accounting software and to help you monitor financial performance, take action, and position your business for growth and success.
