As a business owner, reviewing your financial reports each month is essential for maintaining control and steering your business in the right direction. Here are six key reasons why you should prioritize this important task:
Your Profit and Loss report (P&L) provides a clear numerical picture of how your business is performing. It confirms whether your intuition about the business is accurate or highlights areas that need attention. Check that your Net Profit (income after expenses) is positive and that your Gross Profit (income after direct costs) is sufficient to cover your overheads.
A Budget Variance report helps you assess how your business is tracking against set goals. It can indicate if you’re meeting targets, whether income or expenses need adjustment, or if you need to tweak your plans due to changes in the business environment. This keeps you aligned with your business strategy.
Your Cash Summary report (Statement of Cash Flow) shows all cash inflows and outflows, including payments related to assets and liabilities. Reviewing this helps you understand if your income is sufficient to cover payments. If a shortfall is expected, you can take action by ensuring timely customer payments (Aged Receivables), negotiating better payment terms with suppliers (Aged Payables), or applying for financing.
Staying on top of your Accounts Receivable Summary ensures that you’re getting paid on time. Late payments can affect cash flow and increase the risk of bad debts. Regularly reviewing this report ensures you’re collecting payments efficiently and maintaining healthy cash flow.
Financial reports allow you to calculate key financial ratios that provide insights into your business’s health. These include:
These ratios provide a comprehensive view of your business’s financial stability.
Financial reports help you dig deeper into the reasons behind your numbers. If your Net Profit has declined, you can investigate why. Is it due to lower sales? Increased costs? An unexpected expense? Or perhaps it’s just a timing issue? Understanding the “why” empowers you to address problems and optimize areas that need improvement.
By regularly reviewing your financial reports, you can keep your business on track, make data-driven decisions, and ensure long-term success.
Need help interpreting your financial reports? Contact us today at Outside Accounting to get the most value from your numbers and guide your business to success.
Your Outside Team
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