6 Reasons to Look at Your Financial Reports

6 Reasons Why Every Business Owner Should Review Financial Reports Monthly

Making time to look over your financial reports each month is an important task for any business owner. If you are not taking the time to do this, here are 6 reasons we recommend that you should start to.

But before we get our 6 reasons, let’s talk very quickly about which financial reports to look at. At a bare minimum, and depending on the complexity of your business, you should be looking at the following:

4 Financial Reports you should be looking at:

The Statement of Financial Performance; also known as the Profit and Loss report (P&L) or the Income Statement. This report tells you how your business is performing over a period of time, such as; by month or financial year. In broad terms, it shows the revenue that your business has generated, less the expenses for that same period. In other words, it shows how profitable your business is.
The Statement of Financial Position; also known as the Balance Sheet, it shows the value of the business’s Assets, Liabilities and Equity.
- Assets include things like money in bank accounts, Plant and Equipment, Accounts Receivable balances
- Liabilities include things like bank loans and credit cards, Accounts Payable, and Hire Purchase balances
- Equity is the difference between your Assets and your Liabilities and includes Retained Earnings and Owner Funds Introduced.
Accounts Receivable Ageing report (Aged Receivables); this shows how much money is still owed to the business as of a certain date in time. It is usually segmented as to how overdue they are. Sometimes by how far past the invoice date they are. Generally, you will have Current, 30, 60 and 90 days columns.
Accounts Payable Ageing Report (Aged Payables); this report shows who the business owes money to as at a certain date in time. It is usually segmented by overdue period.

6 Reasons why it’s important:

Understand your business better; by looking at your Profit and Loss report monthly you will get a good picture of how your business is performing. It can be helpful to compare periods, or to look at a month by month P&L. Then you can clearly see on one page the revenue and expenses month by month. This helps to identify trends in your data and highlight anomalies in coding/categorising.
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.
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. This will result in getting paid more quickly and reduce the risk of bad debts.
Better relationships with your suppliers; by 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; get an accurate understanding of how much money the business owes and is owed. This will help with cashflow planning. 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; the better you understand your financial reports, the stronger position you will be in to make better business decisions. This will positively affect the profitability of your business and its financial viability.

What should you do next?

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 an appointment time to go through them with you.

Your business success is important to us. Contact us to see how we can help you.