How often are you reviewing your financial reports? If the answer is anything less than every month – it’s time to kick that financially unhealthy habit once and for all. New financial year, new financial you.
Financial reports are not a once a year task to check off. If you are only reserving time to review them once your tax return is delivered, you are only ever looking at the past. Swift and sharp business decisions are not the product of dated information – they are the result of the latest figures in your financial reports.
If you aren’t pencilling this monthly review into your calendar as we speak, here are six reasons why you should. Before we jump in, let’s clarify the specific reports we are looking over.
The four financial reports every business needs.
The number of reports you review every month will be dependent on the complexity of your business. Regardless of how elaborate your business is, these are the four non-negotiables.
The statement of financial performance.
Do you want to know how profitable your business is? The Statement of Financial Performance will be the answer to your prayers. Also known as your income statement or your profit and loss statement (P&L), this is the document that tells you exactly how your business is tracking over a given period. This statement breaks down the revenue you have generated, minus all the expenses involved, for the given period.
The statement of financial position.
Curious to know the value of your business’s assets, liabilities and equity? The Statement of Financial Position, also known as the Balance Sheet, is your pal. For clarity, your business assets include the money in the bank accounts, plant and equipment, as well as your accounts receivable balances. Liabilities encompass anything along the lines of bank loans and credit cards, accounts payable, and hire purchase balances. Finally, equity is the difference between your assets and liabilities; this includes retained earnings and owner funds introduced.
The accounts receivable ageing report.
How much money are you owed? If you have not got the foggiest, your Accounts Receivable Ageing Report will instantly shed some light on that. This report, which also goes by the name Aged Receivables, highlights the money owed to your business at a particular point in time. This report is then further broken down into how far past the invoice date they are or how overdue the outstanding payments are. Typically, you’ll have a current balance as well as 30, 60 and 90 days columns.
The accounts payable ageing report.
On the flip side, if you don’t know how much money your business owes, the Accounts Payable Ageing Report can clear that up. Also known as the Aged Payables, this report details who your business owes money to in regards to a particular period. Once again, this report is typically laid out based on the overdue period.
Why this financial resolution needs to stick.
Hopefully, understanding the insights these reports provide clarifies why you should be looking at your financial reports every month. If you are still not ready to commit, here are six reasons that will convince you.
Keep your finger on the pulse.
Analysing your P&L every month will provide you with a greater insight into your business, including how it has performed month to month and what products or services are the most profitable. A monthly scan of your P&L will allow you to identify trends in your figures and amend any incorrect records before they snowball into a mammoth task at the end of the financial year. It will also provide you with the opportunity to compare different periods of your business.
Ready to go reports.
Putting a P&L and your balance sheet under the microscope provides a fantastic insight into a business, which is precisely why banks and other financial institutions will expect you to hand them over promptly. If your financial reports are already up to date and accurate, no additional reporting work will be required when seeking a loan or an overdraft.
Stay on top of your ingoings and outgoings.
Did you know the longer an overdue amount is left unpaid, the higher the chances of it never being paid are? That’s why you need to stay on top of any overdue accounts. Having a monthly peep at your Accounts Receivable Aged Summary will allow you to promptly follow up with any overdue accounts, meaning you can get paid faster and reduce your bad debts – it’s a win-win.
Nurture your supplier relationships.
When you are recording your supplier bills into your chosen accounting software, your Aged Payables report will alert you to any unpaid invoices. Ensuring you pay these bills on time is mission-critical as it helps you maintain a strong relationship with your suppliers, who are a crucial component of your business.
Let the cash flow.
Not only can late payments break down your relationships with suppliers and affect your business’s ability to operate, but you may be coughing up more cash thanks to late fees. A monthly glance at your financial reports will fill you in on how much money your business owes and is owed, which is key to planning your cash flow and ensuring you have enough money in your accounts for any outgoings.
The perks don’t stop there; knowing the ins and outs of what drives your business’s profitability, its expenses and noting any trends will provide you with the information you need to create sales and marketing campaigns to keep the cash flowing.
Make empowered and informed decisions.
Financial reports tell the story of your business, and knowing the story behind your figures empowers you to make smarter decisions. Having a firm understanding of how your business is tracking will allow you to make more informed decisions that will drive profitability and financial health.
Make more possible with financial reports.
If reading your financial reports is something you can definitely get behind but you are already pushed for time, we are here to help.
At Orbit, it’s about setting up good habits for you to track profit, knowing your magic numbers, understanding due dates and saving for rainy days. Our approach to financial reporting is designed to give you more freedom to focus on what you’re passionate about.